Mainland companies renting debt ratings from state-owned banks when raising funds in US money markets are fuelling credit concerns as bad loans mount. Including the first programme guaranteed by Bank of China in New York in 2012, eight firms have set up US$2.6 billion in short-term fundraising backed by standby letters of credit, giving them the same ratings as the lender for a fee, data showed. Unrated China International Marine Containers Group has a US$600 million programme. China Power International Development, which had a junk score until Fitch Ratings withdrew it in 2012, has a US$300 million plan. Global bond sales by mainland issuers carrying bank guarantees already more than doubled to a record US$2.84 billion last year and offerings have been sustained this year even as bad loans on the mainland surged to a three-year high. The use of credit sweeteners for shorter-dated commercial paper is now bringing unrated mainland borrowers to the low-risk US money market. "The only reason why a company needs a standby letter of credit is because in many situations, the underlying credit is a challenging one," said Raymond Chia, the Singapore-based head of credit research at Schroder Investment Management. "Over a longer term, such risky companies and sectors could still pose fundamental issues for the guarantee bank." The mainland companies lowering costs in US money markets include a food processing conglomerate, a commodities trader and a maker of rice cookers. The average yield on AA-rated debt on the mainland due in about 90 days is 5 per cent, according to Chinabond prices. By contrast, nonfinancial commercial paper of that maturity with similar ratings in the US pays 0.11 per cent, data published on the Federal Reserve's website showed. The increasing interest among mainland companies in overseas financing is the latest extension of the mainland's "Go Out" policy, originated in 1999 to encourage enterprises to participate in globalisation. The use of sweeteners mirrors a trend in the 1980s of Japanese banks offering letters of credit to help clients access US markets, according to Chris Conetta, New York-based managing director and global head of commercial paper at Barclays. "In a way what was old is new again," he said. Tapping overseas markets with bank guarantees has become popular as yields rise onshore and investors demand more protection after defaults. LDK Solar failed to pay a note that matured in February and Suntech Power Holdings missed payment on a security in March last year. The average yield on top-rated one-year yuan bonds has increased 97 basis points in the past two years to 4.77 per cent. While the letters of credit have helped assuage international investor concerns, they increase risks for the lenders writing them, according to Chia. "The estimated system leverage of the banks will only go up" as the guarantees are typically booked as contingent, Chia said. "If the company they guarantee goes down, the banks will face a problem for sure."