RMB the new currency for M&A

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Using RMB in major transactions has its advantages, a new survey has found.

Published this week, Allen & Overy’s Generation ¥: RMB: the new global currency report examines how multinationals are adapting their strategies to deal with the increased use of the Chinese currency, and what the rise in the RMB means for M&A.

After seeing a dramatic rise in international usage, the RMB has become one of the top five global payments currencies, a drastic upsurge from the 20th position it held in 2011.

“This is often a result of multinationals having a lot of RMB on hand, due to trading activity with Chinese customers or existing operations in China,” the report said.  “Multinationals are also increasingly active issuers in the RMB dominated debt instrument market.”

The survey found that more than 50 percent of non-Chinese companies are currently using the RMB for payments in multiple regions outside greater China and 62 percent of companies currently using the RMB in cross-border transactions expect the volume of such transactions to at least double in the next five years.

The report observed the role that the increased use of RMB in M&A activity had played in the RMB’s growing popularity.
Using RMB to fund China-based acquisitions or investments, offered significant advantages in terms of converting currency and the speed at which the funds can be released. 

“Companies raising funds and completing M&A transactions in RMB now are therefore positioning themselves at the forefront of the regulatory curve and will be well positioned to benefit from the future progress in the currency’s internationalisation,” the report said.

Bejing based partner at Allen & Overy Jane Jiang said that regulatory framework around the currency is being matched by its growth.  She observed that multinationals will have to think differently about their treasury function to meet the challenge.

“Many of the old restrictions and constraints on which companies based their RMB-related decisions and strategies are fading away,” she said.  “China’s RMB regime is likely to be a source of new possibilities for those companies who not only keep abreast of the changes and adjust their own policies in response but also dare to ask for changes by proactively communicating with more listening regulators.”

Despite the opportunities offered by the use of RMB, the report also noted that senior executives are often lacking in the necessary expertise to fully utilise the currency.
 

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