CNH Tracker-Taiwan's Formosa bond market to remain a local affair

By Michelle Chen

HONG KONG, Nov 28 (Reuters) - Taiwan's decision to allow

Chinese mainland firms to issue yuan bonds in the island may

encourage more supplies from China, but it is unlikely to

challenge Hong Kong's yuan bond market any time soon.

The so-called "Formosa (Taiwan OTC: 8171.TWO - news) " bond, or Chinese yuan debt issued in

Taiwan, will stay largely as a domestic one that serves local

investors given multiple barriers that may dampen appetite of

global issuers and investors, analysts say.

Issues that will likely prevent the fledgling market from

growing rapidly include the need to seek approvals for yuan bond

issues and obtain a licence in order to purchase bonds, as well

as a withholding tax for investors, they say.

Taiwan is a latecomer in developing yuan business after a

clearing bank was assigned there in late January. A handful of

firms sold a total of 3.9 billion yuan ($640.14 million) bonds

before the market fell into quietness since July.

The Financial Supervisory Commission announced on Tuesday

that Chinese policy banks, state-owned commercial banks,

joint-stock banks and their overseas branches can sell Formosa

bonds with approvals from the GreTai Securities Market (GTSM).

Mainland subsidiaries of both Taiwan financial institutions

and Taiwan-listed companies are also allowed to issue yuan

bonds.

Bank of Communications and Agricultural Bank of

China immediately filed applications to issue yuan

bonds on Wednesday, totalling 2.2 billion yuan.

As required, these bonds can only be sold to institutional

investors, many of whom already have access to Hong Kong's yuan

bond market where returns are much more attractive than Taiwan

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