Chinese firms looking beyond dollar financing after yuan devaluation
Corporate treasurers look to reduce currency exposure when raising funds overseas as yuan is fixed higher against dollar for second day
The central bank on Monday set the yuan higher against the US dollar for the second day as the drastic volatility of the currency seen last week pushes more mainland companies to raise part of their funds through yuan debt at home rather than US dollar offshore in order to minimise foreign exchange uncertainties.
Apart from diversifying their currency exposure, corporate treasurers using dollar financing as their major fundraising channel are hedging their debt more than before following last week's unexpected devaluation.
According to HSBC, mainland companies have US$1.7 trillion of outstanding debt. When the yuan devalues, companies earning in that currency must generate more income to refinance or clear their dollar debts.
Christopher Lee, a managing director of greater China corporate ratings at Standard & Poor's, said the devaluation could potentially lead to a change in the fundraising behaviour of many companies on the mainland.
"Given what happened in the past week, issuers will have to consider different options, including onshore markets," Lee said. "For example, the onshore bond market has become active for property developers and other industrials to raise funds. They could actually offer lower cost, same maturity with no currency risks.
"The opening up of the onshore bond market to more issuers will provide another channel for corporates to refinance their debt, including offshore US dollar debt.
"However, it is a fairly small amount that has been raised by corporates in the onshore market.
