House of the year, Hong Kong: Crédit Agricole

Asia Risk Awards 2021

John Luk, head of emerging-markets trading for Hong Kong, Credit Agricole

Crédit Agricole is making its presence felt in the Hong Kong markets: making a positive contribution to the evolution of financial market infrastructure and increasingly supporting mainland Chinese clients with their overseas financing and hedging needs.

“Our mission here in Asia is to be the reference bank and the expert in leading the cross-border financing, structuring and derivatives trade between China and the rest of the world – and Hong Kong is the place to be for that,” says John Luk, head of emerging-markets trading in Hong Kong.

Over the past few years, Crédit Agricole has worked hard on developing its fixed income business in Hong Kong, and is now one of the top arrangers for both Hong Kong dollar and offshore Chinese renminbi (CNH) issuances. In the first five months of the year, Crédit Agricole arranged US$2.3 billion of Hong Kong dollar debt and a further US$3.6 billion of CNH debt, according to data from Bloomberg.

Our mission here in Asia is to be the reference bank and the expert in leading the cross-border financing, structuring and derivatives trade between China and the rest of the world – and Hong Kong is the place to be for that

John Luk, Crédit Agricole

Crédit Agricole is one of only five non-Asian banks designated a primary dealer for Hong Kong’s government bond initiative. The bank is also a market-maker for Hong Kong’s Exchange Fund Bills and Notes (EFBN) debt issuance programme, which supplies liquidity to the local fixed income market.

“These things are important because a lot of issuers and investors look at the infrastructure of the bank and whether they have the distribution capability for the bonds,” says Luk.

“So, when they see that Crédit Agricole is one of the few foreign banks that’s a primary dealer for Hong Kong government bonds, EFBNs, they have confidence in us to provide the service for them.”

Libor transition

Another important way in which Crédit Agricole has been supporting the local market is by promoting the acceptance of alternative risk-free rates in Hong Kong, as the world prepares to transition away from Libor.

In May, Crédit Agricole transacted the first ever cleared USD/CNH cross-currency swap using the secured overnight financing rate (SOFR), which is to serve as a replacement for US dollar Libor. The US$20 million one-year swap, which was done on behalf of an undisclosed Chinese financial institution, sees the client receive compounded SOFR on the floating USD leg and pay a fixed rate of 2.43% on the CNY leg.

We are working hard to do the first SOFR deals in the market in order to facilitate the transition away from Libor

Wing Cheung, Crédit Agricole

“We are working hard to do the first SOFR deals in the market in order to facilitate the transition away from Libor,” says Wing Cheung, head of structuring and product development for Asia.

“In this way, we can set a reference point for clients that they can use when talking to their management about how to prepare for Libor discontinuation.”

Such groundbreaking transactions feed into the regular conversations that Crédit Agricole has with its clients about the Libor switchover, says Cheung.

Green credentials

Another area in which the French bank is making a valuable contribution is in the environmental, social and governance arena.

For the past couple of years, Crédit Agricole has been actively participating in Hong Kong’s global medium-term note programme dedicated to green bond issuances. It has also been providing support for a number of institutions – including the Asian Infrastructure Investment Bank – on the design of their sustainable development frameworks in the region.

In October last year, Crédit Agricole worked as lead arranger on the first ever green Hong Kong dollar derivatives deal. This was a green interest rate swap with a notional value of HK$400 million (US$51 million), which was done on the back of a financing deal for Australian logistics company Goodman. The firm wanted to include a feature in the swap that would offer a preferential coupon discount providing certain pre-defined green criteria were met.

In this case, in order to get the preferential coupon, Goodman would have to maintain at least a silver certificate from the US Green Building Council in ‘Leadership in Energy and Environment Design’, and a gold certificate in Hong Kong’s ‘Building Environment Assessment Method’.

“Since this deal was the first of its kind, the challenge was to get all the criteria and term sheets right, and to work out with Hong Kong agencies what the green criteria should be,” says Luk.

“This deal should pave the way for similar transactions.”

Corporate financing and hedging

Crédit Agricole’s commitment to the Hong Kong market and its strong presence on the mainland has allowed the bank to connect the onshore and offshore renminbi markets in a way that has been highly appreciated by clients, particularly those Chinese firms that have been looking for cheap hedging and financing deals in fairly volatile markets.

“Many Chinese exporters have US dollar receivables that they need to convert back into renminbi,” says Cheung.

“Whilst they could just do a simple currency forward, we offer clear value to them in the structured solutions that they offer, which brings down hedging costs and allows them to focus on managing their core business, rather than worrying about whether they are buying CNH or CNY at the best rate possible.”

Since 2020, Crédit Agricole has provided more than US$6 billion worth of USD/RMB structured forward hedging solutions tailor-made for Chinese corporates that have been struggling to negotiate the choppy waters of Covid-19.

As a European bank, Crédit Agricole has been particularly successful in helping Chinese clients tap into cheap euro funding and benefit from the widening basis between the euro and CNH, says Cheung.