Singapore's stock exchange plans to start listing securities denominated in the yuan as it challenges Hong Kong and Tokyo for a bigger share of equities and currency trading from the world's second-largest economy.
The move is also seen by ysts as a boost to the Chinese mainland's ambition to internationalize the yuan.
Singapore Exchange Ltd, or SGX, announced on Friday that it is ready to list, quote, trade, clear and settle securities denominated in the yuan as the city-state strives to be an offshore trading center for yuan assets.
"SGX, as the Asian gateway, is committed to being the exchange of choice for issuers with RMB fundraising needs and for investors who are keen to participate in the China growth story," SGX CEO Magnus Bocker said in a statement.
"The listing and trading of RMB securities on SGX will also extend Singapore's position as an offshore RMB center."
Issuers listing yuan securities on the exchange have the option of offering dual currency trading, either in the yuan or Singapore dollar, according to the exchange, which is the world's first exchange to offer the clearing of over-the-counter foreign exchange forwards for the yuan.
The first-ever offshore yuan IPO was conducted in Hong Kong last year, where billionaire Li Ka-shing's Hui Xian Real Estate Investment Trust raised 10.48 billion yuan ($1.65 billion). There are no yuan-denominated stocks in Singapore.
Global financial centers are scrambling for opportunities in the surging offshore trading of yuan assets, boosted by growing offshore yuan deposits accumulated in part through yuan-denominated trade settlement.
Singapore is competing against Hong Kong, Tokyo, London and many others to capture the yuan's growing offshore activities, as the Chinese mainland encourages the yuan's cross-border flow.
In April, London issued its first yuan-denominated bond, totaling 1 billion yuan.
Hong Kong also took a step forward this week, as lenders in the city are allowed to extend yuan loans to companies in the Qianhai Bay development zone in Shenzhen, created in part to test a freer yuan.
There are more than 4,000 Chinese companies operating in Singapore and 142 of them are listed on SGX with a total market capitalization of $606 million as of June 30, according to stock exchange data.
Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore, the country's central bank, said last month that yuan deposits in Singapore had grown to about 60 billion yuan. Singapore-based companies such as Global Logistics Properties and Singamas issued renminbi debts in 2011.
Singapore's central bank is one of 17 central banks that have bilateral swap agreements with the People's Bank of China, the central bank. It also inked an agreement with the PBOC on the establishment of a representative office in Beijing last month, the third overseas representative office following London and New York.
Nathan Chow, a Hong Kong-based economist with DBS Group Holdings, a Singaporean bank, said that Singapore faces two challenges on its road to becoming an offshore yuan center.
First, the Singapore dollar has appreciated by more than 10 percent against the yuan over the past decade, and the constant appreciation makes investors reluctant to hold the Chinese currency, he said.
Second, the amount of yuan is limited in the city-state, which means the market will lack liquidity.
There is currently around 60 billion yuan in deposits in Singapore, around one-tenth of that in Hong Kong.
"But I am bullish on Singapore as it could facilitate yuan trading in the ASEAN countries should it become an offshore center," Chow said.
SGX's move to begin yuan-denominated securities trading will not pose a threat to the yuan-denominated business of Hong Kong Exchanges and Clearing Ltd, ysts said.
"SGX was always flexible enough to introduce innovative financial products to compete with the HKEx," said Dickie Wong, a Hong Kong-based yst and director at Kingston Securities Research.
"There is no doubt that SGX also wants to get a slice of the yuan-denominated share trading business."
However, Wong said that Hong Kong will still be the primary destination for mainland enterprises to list.
"Hong Kong's stock market is more active in trading and mainland companies can get higher valuation when they list in Hong Kong," Wong told China Daily.
"Singapore does not possess as huge of a yuan liquidity pool as Hong Kong does to support yuan-denominated share trading. Therefore, I do not think SGX’s move will pose a threat to the HKEx," said Linus Yip, chief strategist at Hong Kong's First Shanghai Securities.
According to the Hong Kong Monetary Authority, yuan deposits in the city totaled 554.3 billion yuan in March.
SGX's announcement was made on the same day as the mainland and Singapore signed documents to promote cooperation in the banking sector.
Banking authorities in Singapore will quicken the approval of two mainland banks filing for full banking licenses in Singapore, according to a statement by the China Banking Regulatory Commission. It did not reveal the names of the banks.
In return, the commission will accelerate its examination of requests by three Singaporean banks — United Overseas Bank Ltd, DBS Group Holdings and Oversea-Chinese Banking Corp Ltd — to set up subsidiaries on the mainland.
