Against a backdrop of geopolitical strains in the Middle East, the Yulan renminbi bond structure has made its debut in Dubai, garnering strong investor interest with its order book more than five times oversubscribed, as global investor appetite for yuan assets remains firm.

Bank of China Dubai rang the listing bell at Nasdaq Dubai on Tuesday for its offshore bond, issued under the Yulan structure. Priced at 2 billion yuan (US$299.6 million) with a two-year tenor, the deal tightened 50 basis points from initial price guidance at its launch. Sovereign accounts took up more than 30 per cent of the allocation.

The listing represents the first offshore bond in the Middle East and North Africa that uses the Yulan framework, as well as the maiden Yulan structure listing on Nasdaq Dubai.

“This listing provided Middle Eastern investors with Chinese yuan on their hands; a new investment channel. It is also part of China’s efforts to internationalise its own currency,” said Gu Weiyong, the chief investment officer at Shanghai-based asset manager Ucon Investment Management.

“Moreover, the transaction could encourage more regional issuers to tap renminbi financing,” Gu added.

Named after Shanghai’s city flower, Yulan bonds were launched at the end of 2020. Issued through the Shanghai Clearing House – the settlement platform for China’s interbank bond market – the instrument was developed in partnership with Euroclear Bank, its Brussels-based counterpart.

The framework supports Chinese offshore bonds denominated in all Euroclear-eligible currencies, letting international investors settle securities within Euroclear’s network and removing the need to navigate China’s domestic settlement regime.

Dubai is not the only recent milestone for the structure. On Monday, the Shanghai Pudong Development Bank sold 1 billion yuan worth of bonds in Singapore under the same Yulan framework. The transaction drew orders from 31 domestic and overseas financial institutions, with overseas investors accounting for 80 per cent of the investor base.

“The expansion [of offshore bonds this year] is driven mainly by a sharp divergence between Chinese and the US monetary policies, which has sharpened the funding-cost advantage of yuan financing,” wrote Yu Lifeng, an analyst at the Beijing-based Dongfang Jincheng ratings agency, in a report in mid October.

Yu noted deepening renminbi internationalisation had enlarged the pool of offshore renminbi liquidity, supported by benefits stemming from Beijing’s policies.

“Yulan bonds are expected to further grow in the second half of this year,” he wrote. According to Chinese financial data provider Wind, over the past six years, Yulan bonds have been denominated in renminbi, US dollars and euros, with issuers spanning financial institutions and a range of companies. Figures from the Shanghai Clearing House showed cumulative issuance topped the equivalent of 30 billion yuan, as of July.

Investor appetite for yuan assets, particularly bonds issued by China’s state lenders, is set to strengthen further.

Fitch Ratings on Tuesday announced that it had affirmed ratings of China’s six large state-owned commercial banks. Industrial and Commercial Bank of China (ICBC), the world’s biggest lender by assets, was assigned a long-term foreign-currency issuer default rating of A, with a stable outlook.

The agency upgraded the viability rating (VR) for all six banks. ICBC, for instance, saw its VR raised from BBB to BBB+.

In its statement, Fitch said the upgrade stemmed from ICBC’s “strong business profile”, which underpinned its “through-the-cycle credit resilience”, alongside “continued improvement” in the operating environment for Chinese banks.