Europe bailout fund chief says yuan bonds a possibility

The head of Europe's rescue fund said the facility could provide investors some protection against initial losses and that it may issue bonds in yuan depending on whether Beijing wants it.

Klaus Regling, chief executive of the European Financial Stability Facility, said the EFSF could offer to take the first 20% of losses in a new investment vehicle that is aimed at drawing money from emerging countries such as China.

"The EFSF will take a certain tranche that will be a junior tranche, which means if something goes wrong, the first loss will be carried by the EFSF. It could be around 20%," Regling said.

Regling, who is in China to persuade Beijing to invest in the fund and help Europe survive its debt crisis, was speaking at an academic discussion at Tsinghua University.

He said the fund has the authority to sell bonds in any currency, and that it could issue bonds in yuan if China approves of the arrangement. But he noted this could be difficult right now.

Regling said he has met with various Chinese government officials to discuss how best to structure the EFSF to attract money from investors. He said he expects to submit a proposal on how the scaled-up fund should look by November.

Regling is in cash-rich China just two days after eurozone leaders struck a last minute deal to boost the firepower of its rescue fund, recapitalise banks and reduce the debt burden on struggling Greece.

But European leaders are now under pressure to come up with a plan on how to expand the 440-billion-euro EFSF to 1 trillion euros.

European officials have said the expansion may be achieved either by offering insurance to buyers of eurozone debt in the primary market or via a new special purpose investment vehicle that it hopes would draw funds from China and Brazil, among other countries.