Companies in Hong Kong moved swiftly on Monday to take advantage of a new Swap Connect rule that lets them hedge using China’s onshore loan prime rate (LPR), as demand rises to manage yuan interest-rate risks.
The introduction of the one-year LPR as a floating reference-rate option provides a benchmark more closely aligned with mainland China’s lending market, helping offshore corporate treasuries manage yuan exposures. The rate is most commonly used in pricing corporate and household loans. The other reference rates Swap Connect supports are the seven-day repo and the three-month and overnight Shanghai interbank offered rates.
“[Yuan]-based assets and liabilities remain one of our core focuses,” said Andrew Fung, executive director and chief financial officer of Henderson Land, which tapped HSBC to complete an LPR-based interest-rate swap, according to the bank’s press release on Monday. The tool allowed the developer to optimise interest-rate risk management for yuan liabilities, he added.
“Global [companies] are increasingly seeking effective offshore solutions to manage their RMB interest-rate risks,” said Cheuk Wong, HSBC’s Asia head of foreign exchange, emerging-market rates and commodities and Hong Kong head of markets and securities services.
The latest Swap Connect enhancement allows banks in Hong Kong to offer yuan interest-rate hedging tools based on a benchmark for most onshore corporate and household loans.
