BOC gets clearance for US dollar bond deals
The Bank of China has become the mainland's first clearing bank for US dollar bond transactions, a move that will eventually allow Chinese companies to issue debt in a foreign currency at home.
The issuance of foreign currency debt is strictly regulated in China, with just a few mainland companies being allowed to raise money in non-yuan denominated debt overseas. The government fears it may have to take on corporate debt issues that turn bad.
Foreign currency investments are also prohibited due to capital flight worries.
The unprecedented appointment - made last month and reported by Financial News yesterday - is seen as a first step towards paving the way for mainland companies to issue foreign currency bonds in the domestic market.
'The settlement bank will create a platform and kick-start other infrastructure that facilitates US dollar bond issues in China,' Fitch China analyst Arthur Lau said.
The mainland has a booming domestic bond market confined to yuan transactions only.
Mainland firms can issue foreign currency bonds overseas, but regulatory constraints mean just a few have done so.
Allowing companies to issue foreign currency bonds at home will help those unable to raise funds through overseas issuances.
'Many mainland companies need foreign currency funding to buy imported materials and equipment,' Moody's Investors Service credit officer Yen Wei said.
Market watchers say mainland US dollar bond issues could attract part of the US$150 billion in foreign currency held by Chinese corporations and individuals. These legitimate funds, however, are not permitted to freely move in and out the mainland due to the unconvertible yuan and tight capital controls.
