Euroclear links Chinese companies with global capital through 'Yulan bonds'

By Samuel Shen and Andrew Galbraith

SHANGHAI, Dec 8 (Reuters) - Brussels-based Euroclear, one of the world's biggest securities depositories, said on Tuesday that it has helped create a new asset class in China, the so-called Yulan bond, aimed at linking Chinese issuers seamlessly with global investors.

Yulan bonds - named after Shanghai's city flower, a magnolia, and denominated mainly in U.S. dollars and euros - will be issued through Shanghai Clearing House, a Chinese interbank bond market clearinghouse. The first issuance is expected within months, a Euroclear spokesman said.

International investors in Yulan bonds will settle the securities within Euroclear's network, freeing them from the need to understand the Chinese settlement system.

Valerie Urbain, CEO of Euroclear Bank, said both Chinese issuers and global investors stood to benefit from the new bonds, which were the culmination of nearly a decade of collaboration between Euroclear and Shanghai Clearing House.

For mid-sized Chinese companies with little experience in global markets, Yulan bonds offer "much wider access to an international investor base, and ... a lower cost of borrowing," Urbain told Reuters in an interview.

China's latest effort to open up its capital markets comes as outgoing U.S. President Donald Trump ramps up moves to isolate China from the global financial system.

Last week, global index publisher FTSE Russell said it will delete the shares of eight Chinese companies from certain products after a U.S. order restricting their purchase.

Yulan bonds also come amid fresh concerns over the health of China's corporate bond market following a series of high-profile defaults.

Urbain said these events will not change Euroclear's role of facilitating cross-border investment between China and international markets.

Investors "have a duty to understand the risk that they are taking, not only from a credit perspective but also from a regulatory perspective," Urbain said.

Urbain expects interest in Yulan bonds to grow rapidly, but said it is hard to predict the market's potential size.

Xie Zhong, chairman of Shanghai Clearing House, said in a statement that both parties will continue to explore new ways to facilitate cross-border investment.

Last September, Euroclear signed a memorandum of understanding with market infrastructure provider China Central Depository & Clearing Co to open a link for easier foreign access to Chinese bonds, aiming to allow the use of yuan-denominated bonds as collateral globally.

Urbain declined to disclose when that link will be launched, saying only that it remains a "work in progress."

(Reporting by Samuel Shen and Andrew Galbraith; Editing by Ana Nicolaci da Costa)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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