June 25, 2019 / 9:06 AM / 4 months ago

UPDATE 2-China to launch first yuan bonds in casino hub Macau

* China MOF to debut bonds in Macau, says to help develop local market

* City trying to diversify from gambling, source of 80% of govt revenues

* Macau govt welcomes issuance, to open the bond to general public (Adds Macau govt comments, analyst comments, banks on the deal, more context)

By Noah Sin and Farah Master

HONG KONG/SHANGHAI, June 25 (Reuters) - China said on Tuesday it will issue two billion yuan ($291.04 million) in yuan-denominated treasury bonds in Macau on July 4, marking the first Chinese treasury bond sale in the world’s biggest gambling hub.

The issuance comes as the Chinese territory aims to diversify away from the casino industry, its main source of revenue. China has never sold treasury bonds in Macau, according to Refinitiv Eikon and a source at Macau’s Monetary Authority.

The Ministry of Finance said in a statement that the bond sales will continue to strengthen financial cooperation between the mainland and Macau, bring more issuers to and speed up the development of the local bond market.

The Macau government welcomed the issuance in a news release on Tuesday, adding the bond will be open to the general public, not just corporate investors.

Macau is considering launching a yuan-based stock market to help it diversification efforts, the city’s de facto central bank told Reuters earlier this month.

But the city has so far struggled to shift its economy away from gambling. Gross gaming revenue totaled $38 billion in 2018, and the industry contributes to more than 80% of government revenues.

Beijing has encouraged the city to develop financial products and services under its plan for a ‘Greater Bay Area’ - the integration of 11 southern cities to create a mega economic powerhouse.

Macau has started to develop financial leasing, wealth management and yuan clearing but services and volumes pale in comparison with neighboring Hong Kong.

The financial hub hosted 612 billion yuan of offshore yuan deposits as of April, compared to Macau's 30 billion yuan. bit.ly/2ZI0WMI.

Becky Liu, head of China macro strategy at Standard Chartered, said in a note the bonds could price “on par to a touch higher” than Chinese Treasuries in Hong Kong “owing to potential lower secondary liquidity.”

China last sold offhore treasury yuan bonds in Hong Kong on June 20, pricing a 3.5 billion yuan, 2-year note at 2.95% and a 1 billion yuan, 5-year tranche at 3.03%.

Bank of China has been appointed sole lead underwriter on the Macau deal, with Bank of Communications and Banco Nacional Ultramarino also working on the deal, Refiniv IFR reported on Tuesday.

The former Portuguese colony will mark its 20th anniversary of its return to Chinese rule in December, and will hold its once-in-five-years leadership election in August. ($1 = 6.8720 Chinese yuan)

Reporting by Noah Sin and Farah Master in HONG KONG and Winni Zhou and Andrew Galbraith in SHANGHAI; Editing by Sam Holmes & Kim Coghill

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