China launches pilot offshore bond issuance scheme

China Huawei and 10 other state-owned financial institutions selected as pilot scheme members

PUBLISHED : Tuesday, 14 February, 2017, 9:58pm
UPDATED : Tuesday, 14 February, 2017, 9:58pm

China Huawei, together with 10 state-owned financial institutions, have been selected to join a pilot programme that grants more flexibility for offshore funding, a statement issued by the National Development and Reform Commission (NDRC) on Tuesday said.

“Companies involved in the pilot scheme could enjoy timing flexibility for issuing offshore bonds within their annual bond issuance quota. They could also use the proceeds in both offshore and onshore markets to bring down the loan cost, and improve the efficiency of using the proceeds,” the statement issued by the top economic planner said.

Chinese companies normally need NDRC’s approval for each offshore bond issuance, while the proceeds raised overseas should not be remitted back to the domestic market.

Analysts said the move was made by the Chinese authority to enhance capital inflow, while encouraging banks to raise US dollars in offshore market that could also support the programmes in China’s Belt and Road initiative.

“Allowing more offshore issuances by local companies will help ease the outflow pressure as they bring the funding onshore. Local firms paying off offshore debt was a big driver of outflows between mid-2015 and mid-2016. With this policy, the authority seems to be trying to engineer the reverse,” said Aidan Yao, senior emerging Asia economist at AXA Investment Managers.

But he noted the challenge was whether local firms see the economic benefits of issuing offshore debt.

“The offshore costs will consist of absolute US dollar funding rates and yuan and US dollar moves. Currently, I think US dollar funding costs remain higher than onshore for all these names, and the market still expects yuan depreciation,” he added.

Seven state-owned banks, including Export-Import Bank of China, China Development Bank, the Industrial and Commercial Bank of China, China Construction Bank, the Agricultural Bank of China, Bank of China, and Bank of Communications, in addition to three financial institutions, namely China Life, China Huarong and China Cinda, together with China Huawei, were selected as the pilot scheme members.