Overseas Financing Is Losing Its Appeal for Chinese Firms, PBOC Study Finds
Du Chuan
DATE:  Feb 23 2019
/ SOURCE:  yicai
Overseas Financing Is Losing Its Appeal for Chinese Firms, PBOC Study Finds Overseas Financing Is Losing Its Appeal for Chinese Firms, PBOC Study Finds

(Yicai Global) Feb. 22 -- Overseas financing costs for Chinese companies continue to rise due to monetary policy shifts at global central banks and tightening offshore yuan liquidity, according to research by the People's Bank of China.

Carried out by the PBOC's General Office in tandem with a number of its branches and major Chinese commercial banks, the study found that the appeal of overseas financing has waned significantly as the difference between domestic and foreign interest rates continues to narrow. Though property developers and local governments with strong capital needs continue to look abroad for funding.

The cost of a one-year US dollar loan with tax included is basically above 2.9 percent and more than 4.35 percent overall if the cost of forward settlement and sale of foreign exchange and domestic guarantee fees are factored in, the PBOC's report shows. There is really no difference in financing at home or abroad and firms are taking a wait-and-see approach on overseas financing.

Despite the high cost of overseas bond issuance, Chinese government financing platforms and realty firms still have large offshore financing needs and are relatively more tolerant of costs. Some developers' US dollar financing costs exceed 13 percent, which is higher than the cost of issuing trusts in China, according to the study.

Compared with import and export traders, government financing platforms and real estate companies often lack overseas repayment sources and dollar positions and have to bear certain forward settlement or sales costs and face greater policy risks. Also, with various intermediary service fees, the cost of issuing bonds overseas is high. Still, they are forced to turn to abroad because they often don't have domestic financing channels and are constrained by too much debt and tight capital chains.

On the other hand, the yuan's offshore interest rate has moved higher together with rising financing costs since August due to tighter overseas yuan liquidity, making the yuan's overseas financing higher than that in China. For example, the overall cost of a one-year yuan loan from a Chinese-funded bank's overseas branch is between 5.16 percent and 6.36 percent, slightly higher than 5.07 percent to 6.22 percent at home, according to the findings of a survey conducted by the PBOC's Nanjing branch.

That means few quality customers of domestic banks borrow yuan abroad, and the scale of overseas yuan financing has dropped significantly. Cross-border yuan loan inflows have fallen to CNY243.1 billion (USD36.2 billion) from CNY466.9 billion in the first half of last year, according to the RMB Cross-border Payment & Receipt Management Information System.

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Keywords:   Industry Survey,Financing Cost,Offshore RMB Deb,Offshore US Dollar Deb,Central Bank