2015-03-09

Debt Trends in China

Chinese businesses are going to Europe to borrow, while local governments will be able to shift their debt onto the muni market.

China Lets Local Authorities Convert Debt Into Muni Bonds
China will allow regional authorities to convert some high-yielding debt into municipal bonds in a bid to cut financing costs on liabilities brokerages say have topped $3 trillion, sparking speculation investors may shoulder losses.

The government will permit as much as 1 trillion yuan ($160 billion) of the obligations to be swapped into local-government notes that have lower yields, the finance ministry said in a statement on its website dated March 8.

That may reduce interest payments by as much as 50 billion yuan a year, allowing authorities to boost spending, it said.
A 5% cut in interest.

China Inc flocks to euro debt for funding
Chinese companies are ditching the renminbi and flocking to the euro to raise new offshore debt, as the imminent launch of quantitative easing in the single currency bloc sends ripples through global markets.
So far this year, mainland-based companies have sold $2.9bn worth of euro-denominated debt, according to Dealogic, compared with nothing in the first quarter of last year and within striking distance of the $3.3bn raised during the whole of 2014.

Meanwhile, Chinese borrowers have shunned offshore renminbi debt, known better as “dim sum” bonds. The total raised in the market this year is only $250m, a dramatic drop from the $6.6bn issued during the first three months of last year. US dollar borrowing has been steadily high, with $16.3bn of bonds sold this year.

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