Curbs on yuan refinancing should go, Beijing told
China should relax restrictions barring foreign investors in Chinese power projects from refinancing in local currency as mainland banks are keen to lend to them, according to an industry player.
Shi Weiming, vice-president of power firm InterGen (HK), said there was strong demand for refinancing power projects' foreign currency debt, mostly US dollar dominated, into lower-interest yuan loans.
Fuelling this demand was the increased efforts of independent power producers (IPP) to cut costs due to rising risks from the mainland's power sector reforms, he said.
'Foreign investors are technically allowed to have their foreign currency dominated debts refinanced into yuan if they obtain the mainland foreign exchange authorities' approval,' he said.
'However, I haven't seen any successful cases yet,' he added after an American Chamber of Commerce luncheon.
Foreign investors are allowed to take out yuan-dominated loans, but the loans must be used purely for production purposes.
He said there were at least 52 medium to large-sized foreign-invested power plants operating in China that were mostly funded by offshore loans and shareholders' loans.
The total amount of these debts was estimated to be US$9 billion, of which US$5.4 billion was outstanding, he said.
'The [yuan] lending rate is very competitive and there is a large appetite for quality foreign-owned projects,' he said.
'So, relaxing refinancing restrictions will create a win-win situation between commercial banks and interest payers.'
The Government has been keeping a tight control on regulating foreign exchange to avoid an asset drain.
However, Mr Shi said: 'There is a positive sign in that tight regulations and restrictions on refinancing the pre-payment of foreign power projects have been lessened.'
He believed the sweeping reforms of the power sector would create a level playing field in the long run.
'But in the short term, there are many unknowns to the reforms. And unknowns are translated into risks,' he said.
The reforms are aimed at boosting efficiency and raising the affordability of tariffs through the introduction of competition. This will primarily involve the restructuring of power generation and distribution assets of near-monopoly State Power Corp.
State Power owns about half of the country's roughly 300 gigawatts of installed capacity.
As of April, the installed capacity of foreign-invested power plants totalled 34.6 gigawatts, or about 10 per cent of the country's total, according to Mr Shi.