Reuters News - A string of mega deals drives global M&A recovery in first quarter

A woman walks past the old Time Warner Cable headquarters as a man tries to enter the building in New York February 13, 2014.

(Reuters) - A string of large transactions drove the value of globalmergers and acquisitions (M&A) activity up by 54 percent in the first quarter compared to the same period last year, reflecting greater deal-making confidence among chief executives.

The value of worldwide announced deals totaled $710 billion in the first three months of the year, according to Thomson Reuters data, which includes competing bids for Time Warner Cable and SFR. Global M&A is up 35 percent excluding these competing bids.

Almost half of the M&A pot came from deals worth $5 billion or more.

The number of deals however dropped by 14 percent, the slowest year-to-date period for dealmaking by number of deals since 2003. This means fewer but larger deals have been driving activity so far this year.

"There have been several transformational deals and companies have made some bold and aggressive moves. I'm hopeful that we'll see more of this in 2014.", said Hernan Cristerna, co-head of global M&A at JP Morgan.

"We've seen something of a return of animal spirits."

Comcast Corp trumped Charter Communications with a bid valuing Time Warner Cable at $70.6 billion in enterprise value, the largest transaction in the works since January.

Earlier this year, Ireland-based Actavis. the world's second-largest generic drugmaker, spent $23.8 billion to buy U.S. specialty pharmaceuticals firm Forest Laboratories, its largest acquisition ever.

Facebook also made its boldest M&A move, paying $19.4 billion for its acquisition to grab mobile messaging services firm Whatsapp.

While the U.S. continues to stage most of the M&A action with 51 percent of the market by value of deals so far this year, Europe and Asia-Pacific are gradually catching up with 24 percent and 16 percent of the market. Asia-Pacific had the strongest start of the year on record with announced deals worth $113 billion and 1,751 transaction, according to Thomson Reuters data.

M&A activity in France rose by 673 percent, boosted by SFR and L'Oreal, two of the biggest deals so far this year.

Morgan Stanley moved into the top position for worldwide M&A advisors during the first quarter, boosted by its role advising Japan's drinks firm Suntory on its $16 billion acquisition of U.S. bourbon maker Jim Beam.

(For more detail on the Q1 M&A data please click: here)

NO SURGE YET

"We are starting to see a slow but steady growth in large deals which implies an increase in confidence.", said Henrik Aslaksen, Global Head of M&A at Deutsche Bank.

"These have a big impact on the market but can skew the true picture. There is no M&A surge yet.," he said, comparing current activity to levels before the global financial crisis.

Deals between 1 billion and 5 billion dollars, which usually constitute the sweet spot and are a barometer for the health of the M&A market, are up 17.5 percent with 91 transactions so far this year.

"The pipeline at the moment looks healthier than the number of deals being announced, which means getting deals done remains difficult," said Jonathan Rowley, co-head of M&A in Europe, Middle East and Africa at UBS.

More generally, high valuations in the equity market and regulatory risk continue to hold back a stronger uptick in M&A activity, which is still down 17 percent compared to the first quarter of 2007 when M&A peaked before the crisis, according to TR data.

"The number one hurdle is valuation as the pricing of assets is reasonably full and makesit difficult for bidders to pay a premium to the share price," said Rowley.

Regulatory risk is especially threatening Telecoms, Media and Technology (TMT), the most active sectors for M&A at the moment with a combined 39 percent market share according to TR data, as anti-trust watchdogs around the world seek to protect customers against potential cartels.

AT&T's blocked acquisition of Deutsche Telekom's U.S. unit by the U.S. competition authority is still clouding prospects of greater consolidation in the U.S. telecom market. In Europe, the European Commission's verdict in May over Hutchison's acquisition of O2 Ireland and Telefonica's move to buy E-Plus from KPN in Germany is likely to set the mood for in-market consolidation in the industry.

"The challenge for M&A generally is that deals have such a long gestation period and it only takes one bump in the road to slow things down.", said Greg Lemkau, co-head of global M&A at Goldman Sachs.

"But while there will always be geopolitical or macro risks, the risk that is more acute to M&A right now is the regulatory environment."

THE DREAM DEAL

With the main ingredients for M&A now in place - cheap funding, cash-rich corporates, a relatively stable macroeconomic environment and strong equity market -, those having the guts to complement organic growth through acquisitions have so far been rewarded on average.

"It's an opportune time for CEOs to think about their ‘dream deal'", said Lemkau.

Another encouraging sign is that most acquirers of the biggest transactions so far this year saw their share price rise on the back of their deals, except Facebook.

"Immediate stock price reaction is something people are focused on, perhaps overly so, but it does influence the psyche of boards and CEOs. I don't think this recent wave of positive stock price reaction is driving companies to do deals solely for that reason, but it has reduced one of the key anxieties of an acquirer," said Lemkau.

Finally, activist investors targeting underperforming companies are expected by bankers to aim at more firms in the United States and even in Europe following recent successes.

Billionaire activist investor Carl Icahn pocketed $600 million earlier this year after his successful push within Forest Laboratories to sell to Actavis.

Recent companies targeted by activist investors include UK retailer Morrisons, UK transport companies Firstgroup, Swiss bank UBS, U.S. computer network equipment Juniper Networks, eBay, Abercrombie and several oil & gas majors.

While importing the activist model from the United States to Europe is unlikely to bring the same results because boards and executives are more closely aligned in Europe, targeted activism handled behind closed-doors could well lead to more M&A.

"Activist investors and funds are increasingly targeting Europe; obviously, they are adapting their approach to the European corporate landscape," said Yoel Zaoui, co-founder of Zaoui & Co advisory boutique, who recently advised L'Oreal and Peugeot alongside his brother Michael on two of the largest transactions in Europe since the beginning of the year.

(Reporting by Sophie Sassard; editing by Keiron Henderson)

Bloomberg News - Ukraine Unlocks $27 Billion International Aid Deal

Photographer: Robert Ghement/EPA

Ukrainians cast their shadows while waving a giant composite flag full of signatures during a rally on Independence Square in Kiev, Ukraine, on March 23, 2014.

Ukraine reached a preliminary deal with the International Monetary Fund to unlock $27 billion in international aid as U.S. lawmakers passed bills imposing more sanctions on Russians linked to Crimea’s annexation.

The government in Kiev reached a staff-level accord with the IMF for a two-year loan of $14 billion to $18 billion, the lender said today in an e-mailed statement. The IMF’s board must still sign off on the package, Ukraine’s third since 2008, and the cabinet must complete “prior actions” to receive the first installment as early as April.

President Barack Obama said the IMF agreement is “a major step forward” for Ukraine’s bid to stabilize its economy. “It provides the prospect for true growth” and is “a concrete signal of how the world is united with Ukraine,” Obama said at a news conference in Rome today.

Full coverage of the Ukraine Crisis:

• Nationalists Keep Ukraine on Edge as Stability Is Elusive
• Soros-Backed Sale of U.S. Oil Reserves Seen as Putin Penalty
• NATO Refocuses on Home Defense, With a Hand From Putin

Ukraine’s government, which came to power after an uprising ousted President Viktor Yanukovych last month, is grappling with an economy threatening to slide into a third recession in six years, dwindling reserves and a weakening currency. Ukrainian asset prices have also suffered asRussia’s takeover of the Black Sea Crimean peninsula sparked European and U.S. sanctions and rekindled memories of the Cold War.

The U.S. Senate and House in Washington passed bills today imposing further sanctions on Russian and Ukrainian officials connected with Russia’s takeover of Crimea. The Senate bill includes about $1 billion in loan guarantees and $150 million in direct aid for Ukraine. The House passed the loan guarantee earlier this month.

UN Resolution

In New York, the United Nations General Assembly approved a non-binding resolution today declaring Crimea’s March 16 referendum on exiting Ukraine and joining Russia as “having no validity” and calling on all states and agencies to not recognize “any alteration of the status” of Crimea.

The resolution had 100 votes in favor, 11 against and 58 abstentions. It doesn’t mention Russia or directly blame or accuse it of violating Ukraine’s territorial integrity.

“The IMF package should be sufficient to prevent the country falling into a full-blown balance-of-payments crisis,” London-based Capital Economics Ltd. said in an e-mailed note. “But the volatile political situation and Ukraine’s poor track record in implementing reforms demanded by the fund mean that there will still be many doubts about whether politicians will be able to push substantial changes through.”

Yields Plunge

The government Eurobond due in June gained to 97.6 cents on the dollar from 96.5 yesterday, pushing the yield, which reached 55.7 percent on March 12, down 7 percentage points to 21.36 percent, data compiled by Bloomberg showed. The Ukrainian Equities Index fell 0.6 percent, while the hryvnia, the worst performer against the dollar in 2014 with a 26 percent decline, advanced to 10.99 from 11.22 before later sliding to 11.12.

A Snapshot of Ukraine's Past and Future

As part of the IMF agreement, Ukraine agreed to narrow the budget deficit to 2.5 percent of gross domestic product by 2016 and to raise retail energy tariffs toward their full cost, according to the Washington-based lender. The central bank will shift to a flexible exchange rate and inflation targeting, while the nation will tackle bad debts at banks, it said.

Lawmakers in Kiev approved budget changes and a tax bill today needed for the IMF loan deal.

‘Very Unpopular’

“The country is on the edge of economic and financial bankruptcy,” Prime Minister Arseniy Yatsenyuk said today in Kiev. “This package of laws is very unpopular, very difficult, very tough. Reforms that should have been done in the past 20 years.”

After being voted in by lawmakers last month, Yatsenyuk described his task as a “kamikaze” mission, saying Ukraine is in a “great mess” with an empty treasury and foreign-currency reserves that have been “robbed.” GDP will shrink 3 percent in 2014 and inflation may be as high as 14 percent, he said today.

Approval for the rescue package is “expected in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth,” IMF mission chief Nikolay Gueorguiev said in the statement. Disbursement may start next month, he told reporters in Kiev.

The IMF agreement will clear the way for a planned 1.6 billion euros ($2.2 billion) in emergency aid from the European Union, European Commission President Jose Barroso said March 5.

‘Powerful Sign’

The EU has also pledged project loans and grants that could reach 11 billion euros over seven years. The European Bank for Reconstruction and Development said today that it would increase investments in Ukraine to 1 billion euros a year and would resume lending for state-run projects.

Russia agreed with Yanukovych in December on a $15 billion bailout and a one-third reduction in natural gas prices. The Kremlin withdrew that discount, as well as another it granted in 2010, doubling the price Ukraine may have to pay for the fuel starting next month, according to Yatsenyuk. Ukraine depends on Russia for more than half of its gas needs.

Russia also stopped its bailout after disbursing the first $3 billion in 2013. The first interest payment on the loan, which was granted in the form of a two-year Eurobond, is due in June. Ukraine owes $13.6 billion in total in the next 11 months. State debt represents 53 percent of GDP, Yatsenyuk said today.

Curb Exports

Russia, which doesn’t recognize the new government in Kiev, will curb Ukrainian exports through trade restrictions that could lower economic growth by 1 percentage point, according to Yatsenyuk. Ukraine will probably pay $480 per 1,000 cubic meters of Russian gas from April 1, he said.

Russia’s tactics in Ukraine, particularly its annexation of Crimea, have sparked the worst standoff with the U.S. and its allies in more than 20 years. Obama said yesterday that America and Europe must stand united against Russian attempts to redraw Ukraine’s boundaries, warning that indifference would ignore the lessons from two world wars.

While investors in Ukraine are pleased that the IMF pact doesn’t impose losses on bondholders, their enthusiasm may give way as May 25 presidential elections approach, according to Arko Sen, a London-based analyst at Bank of America Corp.

“There was substantial market concern about an imminent restructuring, which is why we’re seeing the ongoing relief rally in Ukraine assets,” he said today by e-mail. “That can run a bit further in the near term, before giving way to the risks of program execution and upcoming elections against the backdrop of rising domestic tariffs and a weak economy.”

To contact the reporters on this story: Daryna Krasnolutska in Kiev atdkrasnolutsk@bloomberg.net; Daria Marchak in Kiev at dmarchak@bloomberg.net

Bloomberg News - China Plans Change to Opening-Price Mechanism of Money Rates

Photographer: SeongJoon Cho/Bloomberg

China is loosening controls on borrowing costs to give market-determined interest rates a greater role in pricing risk. 

The People’s Bank of China plans to change the way it compiles the opening prices of benchmark money-market rates to help prevent manipulation, according to two people with knowledge of the matter.

The National Interbank Funding Center will ask 50 institutions to submit quotes anonymously for overnight and seven-day repurchase agreements from 9 a.m. inShanghai, and use these to derive an opening level published at 9:30 a.m., according to a proposal outlined in a document sent to market participants. The center, a unit of the central bank, did not give a timeframe for the proposed change, the people said. Currently, the level is the first trade recorded each day.

“The problem with the existing system is that the opening price can be determined by as few as two banks,” said Chen Peng, a fixed-income analyst at Fortune Securities Co. in Shenzhen, Guangdong province. “Because most of the following bids and asks treat the opening price as the reference rate, it can induce manipulation.”

China is loosening controls on borrowing costs to give market-determined interest rates a greater role in pricing risk. The seven-day repo or the Shanghai Interbank Offered Rate can become the nation’s new benchmark rate, PBOC Deputy Governor Yi Gang was cited as saying in a Nov. 26 report by the official Xinhua News Agency. Goldman Sachs Group Inc. has designated the seven-day repo its key barometer and stopped making forecasts for the central bank’s official lending and deposit rates, which were last adjusted in July 2012.

Rate Reform

Policy makers removed last year a floor on the lending rates banks can charge to borrowers, and PBOC’s Yi said deposit-rate reform will be the focus this year and next, Caixin magazine reported on its website on March 22.

The seven-day repo rate, a gauge of funding availability in the interbank market, rose 24 basis points, or 0.24 percentage point, today to 3.88 percent as of 12:19 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The overnight rate increased two basis points to 2.52 percent. The first transactions recorded today were at 3.60 percent and 2.50 percent, respectively.

The minimum amount for institutions’ quotes to be counted toward the setting of the opening level would be 100 million yuan ($16.1 million) and the maximum 500 million yuan, according to the document. A press officer at the National Interbank Funding Center declined to comment on the plan.

Better Indicators

The proposed changes to the setting of the opening levels are “going to help the indicators better reflect the real liquidity situation,” said Li Haitao, a Shanghai-based bond analyst at China Guangfa Bank Co. “The seven-day repo, in particular, is the underlying rate for a lot of transactions and derivatives, so it’s not desirable for regulators to see it distorted because of thin trading.”

In the domestic foreign-exchange market, China should set the yuan’s closing price as the next day’s opening price, China Securities Journal reported today, citing Chen Bingcai, a former official with State Administration of Foreign Exchange and a researcher with the Chinese Academy of Governance.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai athsun30@bloomberg.net; Yuanting Yin in Beijing at yyin26@bloomberg.net

BBC News - Russia warns of investor flight

Russia expects investors to move up to $70bn (£42bn) of assets out of the country in the first three months of this year.

Figures around President Vladimir Putin have been the subject of EU and US sanctions

The sign that investors are becoming nervous about Russia comes amid sanctions and tensions over Ukraine.

Speaking to reporters on Monday, Andrei Klepach, Russia's deputy economy minister, also warned of stagnant growth and rising inflation.

He expects growth in the first quarter to be "around zero".

The Russian economy grew by just 1.3% last year, but Mr Klepach said it was "too soon" to talk about "a recovery from stagnation".

"There won't be a recession, but there is a problem of stagnation: it's length and depth," Mr Klepach said.

"Unfortunately the investment slump is continuing. I'm not ready to say how long it will continue."

The Russian economy ministry forecasts suggest $65-70bn of assets would be taken out of Russia this quarter, but Mr Klepach said the figure was likely to be closer to $70bn.

That would mark a significant rise on 2013, when capital outflows for the entire year totalled $63bn.

Mr Klepach said sanctions imposed by the US and EU in the wake of the Ukraine crisis had yet to have a significant impact, but said "worsening of relations is a significantly negative factor for economic growth and correspondingly influences the capital outflow."

BBC News - Visa and MasterCard block Russian bank customers

Visa and MasterCard have blocked credit card services to some Russian bank customers as a result of US sanctions.

Four banks are so far affected, all of which have links to Russians blacklisted by the US.

Visa and MasterCard, both US-based companies, are forbidden from having any dealings with those targeted by the sanctions.

The banks, which said card services stopped without warning, have described the move as unlawful.

'Frozen out'

One of the banks affected, Bank Rossiya, is described by the US as Russia's 15th largest, with assets of $12bn (£7.27bn).

The St Petersburg-based bank has been singled out by Washington as the personal bank for senior Russian officials. US officials said it would be "frozen out" from the dollar.

Russian President Vladimir Putin said Bank Rossiya had nothing to do with events in Crimea and promised to transfer his wages there.

Russian President Vladimir Putin has promised to protect Bank Rossiya

"I personally don't have an account there, but I certainly will open one on Monday," he told a meeting of Russia's Security Council.

President Putin also instructed the Russian central bank to step in, if needed, but the latter said the sanctions on Bank Rossiya did "not have a serious bearing on the lender's financial stability".

'Illegitimate'

Visa and Mastercard also confirmed they had stopped providing services to SMP Bank, which is controlled by US-blacklisted brothers Arkady and Boris Rotenberg.

The bank, which is Russia's 39th biggest with $5bn in assets, called the actions "illegitimate" because its owners, rather than the bank itself, were the subject of sanctions.

Bank Rossiya's affiliate banks, Sobinbank and InvestKapitalBank, were also affected.

But Visa said more than 99% of its business in Russia was untouched by sanctions.

Russian shares fell sharply on Friday as investors weighed the impact of western sanctions over Ukraine.

The MICEX index, which is priced in roubles, fell as much as 3% and the RTS, which is priced in dollars fell 3.6%.

Stocks slumped after US President Barack Obama said sanctions might be extended to key parts of the Russian economy if Russia took further action in Ukraine.

Share falls

Russia's mining, defence and natural resources sectors could all be targets.

Stocks recovered some ground during the day after Russian President Vladimir Putin moved to restore calm following the introduction of asset freezes and visa bans by the US against high ranking Russian officials.

The MICEX closed down 1% and the RTS index was down 1.3% at the end of the day.

Allies of the Russian president targeted by US sanctions include railways boss Vladimir Yakunin (left)

Although only banks with connections to high-ranking Russian officials have been targeted, Russian bank shares were broadly lower.

Shares in Sberbank, Russia's largest bank, closed 1.17% lower - having fallen 2.9% earlier on Friday, while shares in VTB Bank were 2.61% lower after falling 4.3% earlier in the day.

Other sectors were also hit. Gas giant Gazprom was down 0.9%, oil firm Lukoil ended the day 1.36% higher. Russian steel company NLMK closed 1.94% lower.

Shares in gas producer Novatek closed down 9.63%. The company is part owned by Gennady Timchenko, a shareholder in Bank Rossiya and one of the wealthy Russian businessmen targeted by Western sanctions.

Negative outlook

Ratings agencies S&P and Fitch warned they were changing their outlook for the Russian economy to "negative" from "stable" - the first stage before a possible downgrade in the country's credit rating - because of the potential impact of sanctions.

Fitch said: "Since US and EU banks and investors may well be reluctant to lend to Russia under the current circumstances, the economy may slow further and the private sector may require official support."

Gennady Timchenko, owner of gas firm Novatek and shareholder in Bank Rossiya, has been targeted by sanctions

President Putin's spokesman Dmitry Peskov criticised the move, suggesting it was not an objective decision and that somebody "ordered" it.

Russia's credit rating is currently BBB.

Meanwhile the rouble was stable on Friday having previously fallen sharply on Thursday evening in response to the announcement of further US sanctions.

Later on Friday morning Germany said it had decided to suspend approval of all defence-related exports to Russia.

Berlin ordered defence contractor Rheinmetall to halt delivery of combat simulation gear to Russia earlier this week.

The ministry spokesman said this was a "one-off" case, but future deals would also be blocked.

"The (Rheinmetall) case that you are talking about is a one-off case. Nevertheless it is true that given the current situation in Russia, we are not approving any exports of defence goods to this country at the moment," the spokesman said.

BBC News - US Federal Reserve hints at interest rate rise in 2015

The US Federal Reserve Chair Janet Yellen has hinted that interest rates in the US could start to rise in early 2015.

The Fed has been buying bonds to keep interest rates low and boost growth

Ms Yellen said the Fed could begin raising rates six months after it halts its monthly bond-buying programme.

She made the remarks after the Fed said it will scale back bond purchases by a further $10bn (£6bn) per month.

This is the third time in a row that the central bank has tightened its stimulus efforts.

The latest reduction brings the Fed's monthly bond-buying down to $55bn from $85bn last year.

"This is the kind of term it's hard to define," Ms Yellen said at a press conference. "Probably means something on the order of six months, or that type of thing."

If bond purchases end - as expected - later this year, this would imply rate increases around April 2015.

Broader indicators

The Fed lowered its overnight interest rate to 0% in December 2008 as part of the steps it took to trigger growth in the economy amid the global financial crisis.

Hints that the Federal Reserve might raise rates spooked markets, reports Michelle Fleury

That crisis hurt the US economic growth and resulted in high levels of unemployment.

Along with lowering the interest rates, the central bank also started buying bonds in an attempt to keep long-term borrowing costs low.

The idea was to encourage businesses to borrow and spend more, to try and spur growth in the economy and create more jobs.

The stimulus efforts appear to have had an impact, with the US economy showing signs of recovery of late.

That has seen the central bank scale back its key stimulus measure - the bond-buying programme also known as quantitative easing - for three months in a row.

However in its latest policy decision, the Fed said it would look at multiple factors before approving any rise in interest rates.

It had previously hinted at doing so once the jobless rate fell to 6.5%.

"This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," it said.

Nervous markets?

US stock markets fell on the news.

Some analysts are saying the change in the Fed's guidance led to worries that interest rates may rise sooner than expected.

"The Fed moved the goal post again," said David Molar, managing director at Hightower.

"It goes from a 6.5% unemployment threshold to a qualitative approach which is nebulous for the market.

"No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It's a major change in policy."

Mark Grant, managing director at Southwest Securities added: "What seems to be troubling the market is that even though it reiterated that it wouldn't be raising rates this year, people were put on notice that a hike is coming."

"We'll likely see some rise in short rates as a result of this, if not out across the whole curve."

Bloomberg News - Yuan Starts Direct Trading With Kiwi Dollar in Shanghai

Photographer: Brent Lewin/Bloomberg

Crumpled New Zealand one-hundred dollar banknotes are arranged for a photograph in Hong Kong, China.

China started direct trading between theyuan and New Zealand’s dollar today as the world’s second-largest economy promotes usage of its currency in global trade and finance.

The move will help reduce foreign-exchange transaction costs between the two nations, the People’s Bank of China said on its website yesterday. The central bank set a reference rate for the currency pair of 5.2899 per New Zealand dollartoday and yuan moves in Shanghai are limited to 3 percent on either side of the fixing. The onset of direct trading coincides with a visit to Beijing by New Zealand Prime Minister John Key.

The kiwi became the fourth currency to trade directly against the yuan in Shanghai, joining the Australian dollar, the Japanese yen and theU.S. dollar. The U.K. and Singapore announced deals with China in October to make their currencies convertible for yuan, which has overtaken the euro to rank second in terms of use for global trade finance.

“Direct trading with New Zealand will help boost the global usage of yuan through trade settlement and invoicing,” said Tommy Ong, executive director of treasury and markets at DBS Bank Hong Kong Ltd. “It will also contribute to lower transaction costs for companies since there’s no need to go through two currency pairs but one.”

Surging Trade

Two-way trade between New Zealand and China surged 29 percent to NZ$18.86 billion ($16 billion) in the 12 months through January, government data show, with the Asian nation overtakingAustralia to become New Zealand’s largest trading partner. Australia & New Zealand Banking Group Ltd., HSBC Holdings Plc (HSBA) and Westpac Banking Corp. (WBC) received approval from the PBOC to act as market makers for the currency pair, the banks said in statements.

“Direct trading will increase the integration between the New Zealand and Chinese financial systems, and deepen the economic relationship between the two countries,” Key, a former head of foreign exchange at Merrill Lynch & Co. said in an e-mailed statement.

New Zealand’s growing trade with China means direct currency trading is important for businesses, similar to the situation with Australia, which started direct Aussie-yuan trade last year, said Hugh Killen, Sydney-based global head of foreign exchange at Westpac.

“Aussie-yuan trade continues to grow rapidly onshore in China, we’re talking billions of dollars a day now,” Killen said today by phone. “China and Australia and China-New Zealand are both long-term growth stories. China is a strategic market for Westpac in foreign exchange, so it’s central to us in terms of long-term opportunities.”

Soaring Kiwi

New Zealand signed a free-trade agreement with China in 2008, clearing the way for increased exports. New Zealand’s merchandise shipments to China jumped to NZ$9.97 billion in 2013, more than doubling since 2010, and accounting for about 20 percent of the smaller nation’s overseas sales, according to Statistics New Zealand.

Chinese demand for New Zealand’s exports helped drive the kiwi up almost 20 percent against the dollar in the past three years, the biggest advance among 16 major currencies. It reached 86.40 U.S. cents earlier today, the strongest since April 2013.

South Korea, which also counts China as its biggest export market, is considering seeking direct trading links between its currency and the yuan. Vice Finance Minister Choo Kyung Ho said on Feb. 18 that the government will support the implementation of direct trading if needed as demand for yuan expands in the financial markets and for trade.

Yuan Band

China doubled the yuan’s trading band against the U.S. dollar this week to 2 percent on either side of a daily reference rate set by the central bank, a step toward giving market forces a greater role in determining its exchange rate.

The PBOC also keeps its currency within 3 percent of fixings against the euro, the British pound, the yen and the Hong Kong dollar, while a 5 percent limit applies to the Malaysian ringgit and the Russian ruble.

“Direct convertibility marks another milestone in the internationalization of the renminbi,” HSBC said in a statement on yesterday’s New Zealand dollar announcement. “Coupled with China’s recent move to widen the daily trading band of the renminbi, it further demonstrates the country’s determination to speed up its financial market reform.”

The yuan has retreated 2.4 percent from its 20-year high of 6.0406 per U.S. dollar reached on Jan. 14, after strengthening 2.9 percent in 2013. At least five banks including Barclays Plc and Bank of America Corp. have trimmed their yuan projections this week, citing concern economic growth is slowing and higher currency swings under a broader band. The yuan gained 0.02 percent today to 6.1910 in Shanghai.

To contact the reporters on this story: Fion Li in Hong Kong at fli59@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net