Titre de la presentation

Europlace Shanghai 2010

Investment Opportunities:RMB Bonds

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Asian Local Currency Markets in Context

Note: Local currency does not include government issuance

Source: Dealogic, as of 15 Nov 10

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Overview of Asian LCY Corporate Bond Markets

LCY Corporate Bond Outstanding as of 30 Jun 2010*

Source: ADB, Taiwan Central Bank, Dealogic, Bloomberg* Corporate Bonds include issues by Financial Institutions* Corporate Bonds include: CP, Short Term and Long term bonds, Asset Backed Securities* India issuance data as of Q3 2010

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Overview of Asian LCY Corporate Bond Markets

LCY Corporate Bond Markets Growth Rates Y-on-Y as o f 30 Jun 2010*

Source: ADB, Taiwan Central Bank, Dealogic, Bloomberg* Corporate Bonds include issues by Financial Institutions* Corporate Bonds include: CP, Short Term and Long term bonds, Asset Backed Securities* India issuance data as of Q3 2010

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Overview of Asian LCY Corporate Bond Markets

LCY Corporate Bond Markets as % of GDP as of 30 Jun 2010*

Source: ADB, Taiwan Central Bank, BIS, Bloomberg, Dealogic, EuroStat, U.S. Bureau of Economic Analysis * Corporate Bonds include issues by Financial Institutions* Corporate Bonds include: CP, Short Term and Long term bonds, Asset Backed Securities* India / EUR / US bond issuance data as of Q3 2010

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2009-2010 YTD Local Currency New Issue Volumes

Note: Local currency does not include government issuance

Source: Dealogic, as of 15 Nov 10

China the most significant market by a considerable margin

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China Primary Market: Top Down

CP MTN Financial Bonds Corporate Bonds

Issue Tenor 1y 3-7y 3-7y 1-15y

Approval Agency

PBOC

(NAFMII)

PBOC

(NAFMII)

PBOC

(NAFMII)

NDRC or CSRC

Issuer Corporates > AA+ Commercial Banks

State-owned Enterprises &

Listed Companies

Issue Market Interbank Interbank Interbank Interbank & Exchange

Issue Volume 2010 YTD

(in billion CNY) 585 452 86 307

Underwriter Commercial Bank

Commercial Bank

Commercial Bank

Securities

Source: Chinabond* Excluding bonds issued by government, central bank and policy banks

Major Types of Bonds in China Domestic Markets*

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Spotlight on RMB Markets

MTN market currently seeing the strongest growth

Source: Chinabond

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Investors and Their Major Bond Holdings*

Source: Chinabond* Major Bond Holdings include investor holding on: Treasury, Policy Bank Banks, Corporate Bonds and CP

Most investors are largely Buy and Hold investors;Large part of the bonds sourced in Primary Market

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Commercial banks are the major investors of RMB bond

Source: Chinabond* Corporate Bonds include: State-owned Corporate bonds and Local Corporate Bonds

Investors and Their Major Bond Holdings

Total Major Bond Holdings Treasury Holdings Policy Bank Bond Holdings

Corporate Bond Holdings* CP Holdings

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Secondary Market Volume

Interbank Market Spot and Repo Trading Volume

Source: ChinabondSecondary market for credit bonds relatively limite d with low turnover

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Secondary Market Volume

Yearly Trading VolumeTrading Volume By Bond Type (2010 YTD)

Trading Volume By Investor Type (2010 YTD)

Source: Chinabond, PBOC

22 Market Makers in Interbank Market

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CNH: RMB in Hong Kong

Pool of CNH deposits in HK has reached CNY149bn as of September, and is expected to grow significantly

Sources: BNP Paribas and CEIC

HK CNY Deposits: Outstanding and as % of Total Depo sits

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Milestones & New Issues in the CNH Debt Capital Mar kets

CNH market – It is the offshore CNY Deliverable Forward market domiciled in Hong Kong

Total: CNY56.38bn / US$8.16bn

First CNY-denominated bond issued by a State owned Red Chip in HK

First CNY-denominated bond issued by a Foreign Corporate in HK

First CNY-denominated bond issued by a Foreign Bank (PRC Branch) in HK

8 June 2007 PBOC announced that mainland Financial Institutions can issue CNY-denominated

financial bonds in HK

11 February 2010 HKMA announced it allowed companies to

issue CNY-denominated bonds in HK

First CNY-denominated bond issued by a PRC Bank in HK

Sources: BNP Paribas

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The Birth of a New Market: CNH Bond Market

Issuer Type Tenor

Issuance Volume Redemption

CNH market – It is the offshore CNY Deliverable Forward market domiciled in Hong Kong

Sources: BNP ParibasYTD

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Issuing in the CNH Market

Execution Process & Timetable

� Documentation: can be off EMTN Programme or standalone

� EMTN Programme needs to have CNH specific requirements (i.e. CMU as additional depository and additional selling restrictions)

Size of Market � Expect initial issue sizes to be similar to HKD transactions

� Will start at around the equivalent of USD 25-50mm first and grow depending on the quality of the issuer and credit appetite

� Benchmark government and agency issuers are around equivalent of USD 100-300mm

Pricing & Maturity � (Normally) Fixed rate basis

� Markets that are most liquid -- maturities of 3 years and below

Marketing � Depends on the Issuer: “brand names” may not need a roadshow

� Target investor base similar to HKD bonds, including some offshore funds

Which issuers? � Currently, non-Chinese corporates are not able to issue CNY bonds onshore, and thus issuing CNH bonds in HK is an attractive alternative to raise funding in RMB

� There is flexibility with regards to issuing entity (i.e. whether the entity is foreign or HK-based)

Use of Proceeds � HKMA places no restrictions on proceeds to be remitted to mainland China

� Hence use of proceeds can be either used offshore or onshore. If onshore, remittance is subject to Chinese Authority approval (still case by case)

� All RMB bond issuers in overseas markets must apply the pre-registration from both PBOC and SAFE for the remittance of RMB bond income to mainland China. 1 or 2 weeks needed for the procedure in PBOC and less than 4 weeks in SAFE Head Office, or 1 or 2 weeks in the authorized SAFE local branches

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Distribution of CNH Bonds

Key Potential Investors

Hong Kong

Current Core Investors

*This list of investor names is representative only and not exhaustive

Agricultural Bank of China, HK

Bank of ChinaBank of China, Hong KongBOC LifeBank of CommunicationsBank of East Asia BNP ParibasDah Sing BankChina Construction Bank,

AsiaChina Construction Bank, HKCitibankCitic Ka Wah Chiyu BankFirst State Investments

Halbis Asset ManagementHang Seng BankHSBCHSBC Private BankICBC AsiaICBC MacauING Investment ManagementManulifeSCBSCB Private BankShanghai Commercial BankSchrodersWing Hang Bank Wing Lung BankAll major private banks…

� In terms of investor type, it is mainly Financial Institutions, Corporates Private Banks & Funds

� Significant growth will come from Global asset managers

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Investing in the CNH Market

RMB Products in Hong Kong

� Who can invest in RMB products in Hong Kong?

• Any customer with an RMB deposit account maintained with a Participating Bank

� What RMB products can investors invest?

• RMB Bonds issued in HK, Certificates of deposit, Structured products, RMB-denominated insurance policies and investment funds

� Clearance of RMB Products

• RMB bonds and CDs are usually cleared through CMU

• Euroclear and Clearstream have each recently announced they are now able to settle transactions and deposit Eurobonds and HK domestic securities denominated in CNY. In theory, it may be possible to settle CNH bonds via the Euroclear system. However, there has been no precedent thus far. Typically, issuers have used the CMU system in HK. If CNH bonds can be settled via Euroclear, there may be increased demand from investors

� Participating Banks can balance their overseas RMB position through two channels: Bank of China HK and mainland correspondent banks, with whom the Participating Bank has signed a settlement agreement which is filed with the PBOC

RMB Deposit � Who can open RMB deposit account in Hong Kong?

• Personal customers, corporates customers and financial institutions (including securities firms, asset management companies and insurance companies)

Sources: HKMA, PBOC, SAFE, CSRC, Chinabond, BNP Paribas

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Investing in China Domestic Bond Market

China Domestic Inter-bank Bond Market

� Who can invest in China Inter-bank Bond Market?• Offshore central banks or monetary authorities • RMB clearing banks in Hong Kong and Macau• Offshore participating banks engaging in RMB settlement of cross-border trades

� What fund can be used to invest in the Interbank ma rket?• RMB funds derived from currency cooperation between central banks, cross-border trade and investment in

RMB business in accordance with relevant regulations� How much can investors invest? – Investment Quota

• As approved by PBOC• The quota approval will be under the consideration of applicants’ current position of RMB and the intention of

the future requirement� How to invest?

• Offshore participating banks must appoint inter-bank bond market settlement agents which have the capability of conducting international settlement business to trade and settle bonds

• Offshore central banks and RMB clearing banks could appoint inter-bank bond market settlement agents or apply directly to open a bonds account with China Central Depository & Clearing Co., Ltd

China Domestic Exchange Bond Market

� Who can invest in China Exchange Bond Market?• Qualified Foreign Institutional Investors (QFIIs), may include: foreign fund management institutions, insurance

companies, securities firms, and asset management companies• CSRC is the approval authority for QFII status, and SAFE approves the QFII investment quota. As of

September 2010, there are 94 QFIIs with a total of CNY 18.97bn investment quota� What can QFIIs invest in China?

• Treasury bonds, convertible bonds and corporate bonds listed on Shanghai and Shenzhen stock exchanges� What’s next? – mini-QFII pilot scheme

• Reportedly, the mini-QFII pilot scheme will commence shortly, which will allow Hong Kong subsidiaries of domestic fund management companies and securities companies to utilize offshore RMB funds to invest directly in onshore listed securities, a quota mechanism would also apply to the mini-QFII mechanism

Sources: HKMA, PBOC, SAFE, CSRC, Chinabond, BNP Paribas

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