“Turmoil Awaits” As China Prepares To Ban Short-Term Dollar Bond Sales
by Tyler Durden
ZeroHedge.com
Thu, 06/28/2018
China is caught between a debt rock and a hard soaring dollar.
On one hand, over the past few years, taking advantage of a relatively cheap and stable dollar, China’s semi-SOEs corporations gorged themselves on dollar borrowings, blowing out their balance sheets but not in yuan but rather in greenbacks. On the other hand, the dollar has surged in 2018 as the yuan has tumbled at a pace not seen since the 2015 devaluation, leaving USD-exposed borrowers scrambling to rollover existing debt.
So faced with the threat of another surge in defaults among USD-borrowers, Bloomberg reports that China is slowing approvals for offshore bonds and is even considering whether to ban outright short-dated issuance in dollars, moves that would reduce financing options for the debt-laden developers that sit at the center of the nation’s economy.
The National Development & Reform Commission is weighing a ban on the sale of dollar bonds with tenors of less than one year, said the people, who asked not to be named because they’re not authorized to speak publicly. The regulator is already restricting offshore issuance quotas for Chinese companies, people said.
In the regulator’s statement, it said that the use of proceeds from builders’ overseas bond sales must be limited to just refinancing, instead of investing in domestic property projects and replenishing working capital.
“Some of the issuers have low profits, which don’t match the amount of foreign debt they are raising,” the NDRC said, referring to developers and to local government financing vehicles.
The news was the latest hit to Chinese stocks, with property developers and airlines tumbling overnight: Air China has fallen for 11 straight days in Hong Kong, its longest ever losing streak. China Southern Airlines has plunged 35% in 10 days, while developer Country Garden Holdings is the worst performer on the Hang Seng Index this week.
There was a similar rout in the bond market, where most Chinese property dollar bonds fell, with China Evergrande Group and Logan Property Holdings leading the losses. In the past two years, Chinese developers have sold about $10 billion of dollar notes that mature in less than a year, Bloomberg-compiled data show.
“The news that China will crack down on property speculation in 30 cities hurt sentiment and put pressure on shares,” said Dai Ming, Shanghai-based fund manager with Hengsheng Asset Management Co. “It makes investors agitated whenever China tightens regulation over the property sector.”
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