DEBT CAPITAL MARKETS

RMB Globalization and Asian Bond Market Development

Date: September 2012Stephen WilliamsHead of Debt Capital Markets, Asia-Pacific

2

Contents

Section 1Section 2

RMB GlobalizationAsian Bond Market Development

Section 1: RMB Globalization

4

2007

Source: HSBCNote: CNH is the name used in the market to refer to offshore deliverable RMB

2004 2009 – 2010 JUNE 2009

Pilot launch of cross-border RMB trade settlement scheme

JUNE 2010Expansion of cross-border RMB trade settlement scheme

JULY 2010Establishment of the offshore RMB (CNH) market in Hong Kong

AUGUST 2010Onshore RMB inter-bank bond market opened to selected offshore RMB Financial Institutions and central banks

SEPTEMBER 2010 Offshore banks allowed to open CNH settlement accounts

RMB Globalization Timeline

JANUARY 2004CNH personal business allowed

JANUARY 2007CNH Bond issues allowed

JANUARY 2011Mainland Enterprises can make overseas investment in CNH in the form of Overseas Direct Investment

MARCH 20118 offshore banks allowed access to onshore bond market

AUGUST 2011- China MOF sovereign CNH20bn bond issue in Hong Kong- Chinese Vice Premier, Li Keqiang, backs HK as offshore RMB centre- Mainland corporates can issue CNH bonds in Hong Kong

OCTOBER 2011Formalization of RMB Foreign Direct investment (“FDI”)

DECEMBER 2011RMB Qualified Foreign Institutional Investor (“RQFII”) launched

2011 2012

SEPTEMBER 2011Private sector-led development of the CNH market in London

DECEMBER 2011City of London initiative on London as a centre for CNH business established

JANUARY 2012UK Chancellor and Chief Executive of HKMA co-operation on development of offshore RMB business

APRIL 2012HSBC Bank Plc issued the first London executed CNH bond issue

JULY 2012 China MOF sovereign CNH bond issue in July

SEPTEMBER 2012Axiata priced the world’s first rated RMB denominated Sukuk issue

5

Offshore RMB Trade and Deposit Volume Growth in Hong Kong

RMB Trade Settlement figure is for trade settled in Hong Kong Source: HKMA

0

100

200

300

400

500

600

700Ja

n-10

Feb-

10M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-1

0A

ug-1

0Se

p-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep-

11O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-12

Feb-

12M

ar-1

2A

pr-1

2M

ay-1

2Ju

n-12

Jul-1

2

RMB Market Deposits

RMB Trade Settlement Volume (Monthly)

Offshore RMB Deposits (2010 – 2012YTD)CNH Billion

6

Offshore RMB Issuance

Offshore RMB Issuance (Cumulative)

Source: Dealogic

CNH Billion

7

RMB in the World

London

UK and China officials support London to develop as the western RMB hub

UK Chancellor and HKMA support private-sector led HK-London Forum

Extension of Hong Kong’s RMB RTGS system to facilitate RMB payments during European time zone through the Hong Kong infrastructure

Japan

Dec-11 – The leaders of China and Japan agreed to enhance financial cooperation

Mar-12 – Bank of Japan received approval to purchase RMB65bn in Chinese Government Bonds

Jun-12 – Direct trading between RMB and JPY was launched in the China Foreign Exchange Trade System (CFETS)

Dubai International Financial Centre (DIFC)

Expected to permit transactions in RMB this year

Allow companies to use RMB instead of USD or EUR for non-oil trade

UAE’s oil exports to China is expected to continue to be settled in USD

Countries / regions with currency swap agreements with China:

Asia: Hong Kong, Singapore, Malaysia, Thailand, Indonesia, Malaysia, South Korea, Mongolia, Pakistan UAE, Uzbekistan, Kazakhstan

Australasia: Australia, New Zealand

Europe: Russia, Iceland, Ukraine, Belarus, Turkey

South America: Argentina

Source: HKMA, PBoC, Reuters

BRICS

Mar-12 – China Development Bank (“CDB”) signed two pacts/agreements with the other BRICS nations’ development bank during the Annual BRICS Summits in New Delhi

CDB will extend RMB loans to other BRICS nations

Aims to boost trade between the five nations and reduce demand for fully convertible currencies for transactions among BRICS nations

Taiwan

July-11 – Offshore banking units (OBU) allowed to conduct RMB business

Opening up of RMB business to designated banking units (DBU)

Australia

Jul-12 – Launch of RMB Trade and Investment Dialogue between Hong Kong and Australia

8

International Issuers in the CNH Markets

February 2012

Lotte Shopping

RM750m 4.000% due 2015

February 2012

Mitsui & Co., Ltd.

RMB500m 4.250% due 2017

March 2012

Alstom

RMB500m 4.250% due 2015

March 2012

Emirates NBD

RMB750m 4.875%RMB250m Reopeningdue 2015

March 2012

Ford Motor Company

RMB1bn 4.875% due 2015

March 2012

Hitachi Capital Corporation

RMB500m 3.750% due 2015

July 2012

Sumitomo Mitsui Finance & Leasing Company

RMB600m 4.000% due 2015

August 2012

Societe Generale

RMB500m 4.150% due 2014

August 2012

ABN AMRO Bank N.V.

RMB500m 3.500% due 2014

July 2012

Kreditanstalt für Wiederaufbau

RMB500m Reopening due 2014

July 2012

Export and Import Bank of Korea

RMB1.75bn 3.250% due 2015

June 2012

Korea Development Bank

RMB1bn 3.300% due 2015

March 2012

Raiffeisen Bank International

RMB750m 4.550% due 2014

May 2012

Landeskreditbank Baden-Württemberg

RMB250m 2.250% due 2014

June & May 2012

Swedish Export Credit

RMB500m 2.375%RMB150m Reopening due 2015

March 2012

ICICI Bank

RMB210m 4.625% due 2015

February 2012

America Movil

RMB1bn 3.500% due 2015

November 2011

IDBI Bank Limited

RMB650m 4.500% due 2014

November 2011

Lafarge Shui On Cement

RMB1.5bn 9.000% due 2014

April 2012

HSBC Bank Plc

RMB2bn 2.875% due 2015

May 2012

Kreditanstalt für Wiederaufbau

RMB1bn 2.050% due 2014

Selected MNC Transactions

Japanese Issuer

9

First London Executed CNH DealHSBC Bank plcRMB2 billion 2.875% 3-year Senior Unsecured Benchmark Issue

Summary Terms and Conditions

First issuer to successfully print a London executed deal HSBC Bank Plc announced its inaugural offshore RMB transaction on Wednesday 18 April 2012. This trade broke new ground by being

the first of its type to specifically target distribution to European investors. This objective was successfully met with 60% being allocated into Europe

HSBC intended to admit the bonds for trading on the LSE ORB system

Milestone for the ongoing internationalisation of the RMB The transaction represents HSBC’s continuous effort in RMB globalisation and in promoting London as the 2nd offshore RMB centre The success of the transaction further cements HSBC’s status as the leading global house for ‘International RMB’ issuance

Strategic execution led to strong market response A series of investor calls announced on Monday 16 April 2012 attracted investors focus on the trade, and the transaction was announced

at the opening of the Hong Kong market with initial guidance of 3% – 3.25% for a benchmark size This strategy secured strong demand in Asia and at the opening of the European market, the issuer was able to upsize the minimum print

to RMB2bn while revising guidance to 3% Given the very good response from investors, orderbook was closed in good shape in excess of RMB4.25 billion from over 100 high

quality accounts

New Market of Distribution

Overwhelming Demand

Groundbreaking Milestone for RMB globalisation

Issuer HSBC Bank PlcAmount RMB2bnFormat Senior UnsecuredIssuer ratings Aa3 / A+ / AA (Moody’s/S&P/Fitch)Issue ratings Aa2 / AA- / AA (Moody’s/S&P/Fitch)Pricing date 18 April 2012

Settlement Date 30 April 2012Maturity 30 April 2015Coupon 2.875% p.aRe-offer Yield 3.000%Re-offer Price 99.644%Listing London Stock Exchange

HSBC Bank Plc.

RMB2bn 2.875%3-year senior unsecured transaction

10

América MóvilRMB1bn 3.500%

3-year senior unsecured transaction

First-ever SEC-registered CNH dealAmérica Móvil (AMX) RMB1 billion 3.500% 3-year Senior Unsecured Notes

Summary Terms and Conditions

Paves the way for more issuance from Latin America This landmark transaction effectively opened an entirely new market for Latin American issuers, reflecting HSBC’s strong commitment to our

clients to explore the best financing alternatives in traditional as well as unconventional markets globally First offshore RMB corporate issuance in 2012, successfully reopening the corporate Dim Sum bond market which had been inactive since late

November in 2011 (excluding issuances from Government-owned Chinese Agencies)

SEC registered CNH Deal America Movil’s inaugural Dim Sum bond also represents the First-ever SEC-registered CNH deal

Well planned execution Although the transaction was fully subscribed by Asia’s close of business, syndicates left books open for 2 hours during New York's open,

allowing additional demand from the US accounts

Extremely well-received with an approximate orderbook of RMB2 billion AMX's landmark transaction was launched at the Hong Kong’s open on February 1, with large orders by real-money accounts coming in

quickly, especially those who had met with the issuer in its Asian roadshow in December and were expecting the transaction With final books totaling nearly RMB2 billion with participation from over 60 accounts, AMX was able to issue RMB1 billion at 3.500%, the

tighter end of initial price guidance (3.500% - 3.600%)

Market Opening Transaction

Strategic Execution

Issuer América Móvil S.A.B. de C.V.Amount RMB1bnFormat SEC RegisteredRanking Senior UnsecuredIssuer ratings A2 / A- / A (Moody’s/S&P/Fitch)

Pricing date 1 February 2012Maturity 8 February 2015Coupon 3.500% p.aListing Luxembourg Stock Exchange

Innovative Format

Strong Market Demand

11

Axiata Group BerhadRMB1bn 3.750%

2-year Islamic senior unsecured transaction

First-ever Rated Islamic CNH dealAxiata Group Berhad (Axiata) RMB1 billion 3.750% 2-year Islamic Senior Unsecured Notes (“Sukuk”)

Summary Terms and Conditions

Paves the way for more Islamic issuers in CHN market This landmark transaction represents the World’s First Rated RMB denominated Sukuk issue, effectively opening an entirely new market for

CNH issuers, reflecting HSBC’s strong commitment to our clients to explore the best financing alternatives and bringing diversified issuers to the RMB market

This transaction also marks the World’s Largest RMB Sukuk Offering to date

First RMB Sukuk in the world that utilises 100% airtime vouchers as an underlying asset Axiata’s inaugural Dim Sum bond represents the World’s First RMB denominated Sukuk that utilises 100% Airtime Vouchers as an

underlying asset, reaffirming HSBC’s role at the forefront in leading innovation in Islamic finance

Extremely well-received with an approximate orderbook of RMB3.5 billion Axiata’s landmark transaction was launched on 11 September 2012 and attracted very strong investor demand, enabling the transaction to be

upsized from an initial proposed RMB500 million while revising price guidance to 3.75% - 3.85% from the initial 4.00% area With a final book of over RMB3.5 billion orders, about seven times of the initial proposed size with participation from over 80 accounts, Axiata

was able to issue RMB1 billion at 3.750%, the tightest end of final price guidance The transaction had a strong distribution across wide investor base among Funds (62%), Banks (22%), Private Banks(14%) and Corporate

( 2%). Hong Kong investors were allocated 55%, Singapore investors 28%, Malaysian investors 13% and the rest went to European and other investors

GroundbreakingTransaction

Issuer Axiata SPV2 BerhadObligor Axiata Group BerhadAmount RMB1bnFormat Regulation SRanking Senior UnsecuredIssuer ratings Baa2 / BBB (Moody’s/S&P)Issue ratings Baa2 / BBB- (Moody’s/S&P)

Pricing date 11 September 2012Settlement date 18 September 2012Maturity 18 September 2014Coupon 3.750% p.aListing Singapore Exchange and

Bursa Malaysia

Innovative Format

Strong Market Demand

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Notes: (1) HSBC in-house estimates

2010-2011 2013-2015 2015 onwards

After USD and Euro, RMB is expected to replace GBP as the 3rd most popular currency for trade settlement globally

More than USD 2 trillion or one half of China’s total trade flows with emerging markets expected to be settled in RMB by 2013 to 2015 (1)

Further financial reform to strengthen domestic financial infrastructure

Paving the way for full RMB convertibility

RMB Market Potential

Section 2: Asian Bond Market Development

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Outlook for Asia and Emerging Markets Remains Constructive

Fund flow into the emerging market has seen strong

growth in the 1H 2012 and should remain stable

through to the 2H 2012

This has resulted in over 173 USD transactions totaling

approximately USD94.1bn in funds

Strong investor demand has seen a strong rebound in

Asia ex-Japan G3 Bonds in the 1H 2012 and looks to

continue till year end. The Asia ex-Japan IG index has tightened from over 250bps

in 2011 to the current 110bps to 130bps level

Source: Bloomberg, 20 September 2012

Global Credit Indices (bps)

50 bps

100 bps

150 bps

200 bps

250 bps

300 bps

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-1250 bps

100 bps

150 bps

200 bps

250 bps

300 bps

iTraxx Asia ex-JP IG iTraxx Europe Index CDX North America IG

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Asian USD Bond Issuance at Record Levels

Entering into 2012, Asian USD primary markets had a strong start as issuers were enticed

by the availability of execution windows against a stable

market backdrop and pent up investor demands following a

lack of primary activities in the 2H 2011

2012YTD, 173 USD transactions were priced

totaling USD94.1bn

Asian USD Monthly Issuance (Cumulative)USD m

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

2012 2011 2010 2009Source: Bloomberg, 20 September 2012

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Corporate (60%)

Financial Institutions (30%)

Sovereign (10%)

AAA (2%)

AA (9%)

A (36%)

BBB (27%)

BB (11%)

B (4%)

NR (11%)

G3 Issuance Analysis (2012YTD)

China (17%)

Hong Kong (19%)

India (6%)

Indonesia (9%)

Korea (19%)

Malaysia (6%)

Mongolia (1%)

Philippines (8%)

Singapore (10%)

Sri Lanka (1%)

Thailand (3%)

Vietnam (1%)

Breakdown By Tenor Breakdown By Ratings

Breakdown By Countries Breakdown by Issuer Types

<5 years (3%)

5 years (40%)

5 to 7 years (12%)

10 years (33%)

> 10 years (12%)

Source: HSBC, Bloomberg, 20 September 2012

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0

50

100

150

200

250

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

G3

Asia-ex Japan Issuance Volume 1999 – 2012YTD

Rising Prominence of the Asian Debt Markets

USD bn• Source of funding largely

characterized by bank / relationship lending

• Scant in terms of variety of issuers, product type and depth

• Burgeoning bond market

• Wider breadth of products

• Savvier issuers and investors alike

• New markets

0

50

100

150

200

250

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Local Currency CNHSource: Bloomberg, 20 September 2012

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Greater Diversification of Asian Borrowers

Asia-ex Japan G3 Bond Distribution of Issuance by Countries

0%

20%

40%

60%

80%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Vietnam

Taiwan

Sri Lanka

Pakistan

Mongolia

Macao

Thailand

Malaysia

Singapore

India

Philippines

Indonesia

China

Hong Kong

South Korea

Source: Dealogic, 20 September 2012

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Asian Bond Market Outlook

Themes• Increasing importance of the Asian local currency bond market – tremendous growth in recent years, particularly CNH

• Increasing participation by Private Bank Investors – active in Asian G3 and local currency primary markets, providing early momentum especially for those unrated or debut issuers

• Increasing sophistication in product development – e. g. High Yield, Hybrid Capital, Sukuk, Inflation-linked bonds

•Dramatic involvement of middle market borrowers – especially after Basel III

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