Yuan Devaluation Worsens Debt Woes for Local Governments and Companies
Local municipalities and real-estate companies in China will now pay more to service dollar-denominated debt
A farmer walks past a vegetable field next to newly built residential buildings in Kunming, China. Heavily indebted Chinese real-estate companies could be among those hit hardest by the devaluation of the yuan. Photo: Reuters
By Chuin-Wei Yap And Esther Fung
Updated Aug. 11, 2015 7:22 p.m. ET
BEIJING—China’s yuan devaluation is likely to hit local-government financing vehicles and Chinese companies that have turned to offshore markets in the past two years to help absorb a potentially crippling level of debt.
Tuesday’s move chokes off a small pipeline to global funds for the country’s heavily indebted localities and further seals off an increasingly insular financial system from a longer-term engagement with international funding markets and standards.
At least six local-government financing vehicles had continuing plans into next year for dollar-denominated bond offerings, and more were pursuing inquiries into the viability of such issues. All are likely to postpone these plans, analysts say. Six such vehicles have issued foreign-currency bonds so far this year, compared with four last year.
“This development will make them rethink the calculation of what their financing will be,” said Nicholas Zhu, senior analyst at Moody’s Investors Service. “It will hinder the development of the market and heighten the awareness of risk.”
The devaluation makes it more expensive for Chinese financing vehicles to pay down their dollar-denominated debt. As it is, analysts say global markets often find it difficult to price such offerings, in part because it isn’t always clear whether they are officially regarded as government debt. There are also a lack of hedging mechanisms to offset potential losses.
Related Coverage
* China Moves to Devalue Yuan
* 5 Things About China’s Currency Devaluation
* China’s Yuan Move Doesn’t Pan Out for Gold
* Currencies in Asia Tumble on Devaluation of Chinese Yuan
* China’s Economy Sputters Into Second Half of Year
* Bets Rise That China’s Yuan Will Fall
* As Markets Swing, Beijing Steadies Yuan
* IMF Seeks More Overhauls as China Pursues Reserve Status for Yuan
* IMF Details Hurdles to Yuan Reserve-Currency Bid
* IMF’s Currency Reservations Send China’s Yuan Lower
Local-government financing vehicles were set up as a means for China’s thousands of local municipalities to grab a slice of the credit binge six years ago, when banks flooded the economy with trillions of yuan in loans on orders from Beijing to stave off the global financial crisis. Local governments are barred from directly borrowing, but the vehicles sidestepped those restrictions.
The money flowed to huge development projects and infrastructure trophies that analysts say didn’t sufficiently meet real demand. Local governments became mired in debt, tied to rising levels of nonperforming loans at state banks.
Local governments, for the most part, aren’t disclosing what they owe and may not even know for sure, according to a survey conducted by Beijing’s Tsinghua University last month. Beijing said two years ago that local governments owed 17.89 trillion yuan ($2.88 trillion) as of June 2013, its last official word. Analysts estimate the sum is now closer to 25 trillion yuan.
At roughly $3.9 billion this year, the overall volume of dollar-denominated bonds so far isn’t large. China’s foreign-currency debt is about 4% of its total.
Low global rates and tighter lending at home have pushed more Chinese companies to borrow offshore in recent years. Chinese property developers with substantial offshore debt would face a bigger repayment bill as the yuan devalues, as well as a drop in asset values that would affect earnings. Credit Suisse in March said many Chinese developers exposed to dollar-denominated debt have no hedging programs in place and estimated that if the yuan depreciates 5%-15%, reported earnings may decline by as much as 74% and net gearing, or leverage, may rise as much as 21 percentage points.
But other analysts said the impact of the yuan’s depreciation is blunted by the increase of funding alternatives for these property firms, such as onshore debt issuance, as well as asset securitization. “It is definitely not a good thing, but I don’t see an immediate hit to the property developers,” said Alvin Wong, an analyst at Barclays Research.
Many Chinese developers, including Evergrande Real Estate Group Ltd., Poly Real Estate Group Co., Longfor Properties Co. and Guangzhou R&F Properties Co., have started to issue yuan-denominated debt since the start of the year, which would offset foreign-exchange volatility risks. On average, developers pay a 5.3% yield on onshore yuan bonds, lower than the more-than-8% yield for dollar-denominated debt, Mr. Wong added.
Tapping offshore markets would potentially have been a way for China’s indebted state entities to relieve the pressure from costly domestic loans, a process that analysts say Tuesday’s devaluation has now hindered. “It will now be even more challenging for state-owned enterprises to convince investors” on China’s ventures into global markets, Moody’s Mr. Zhu said.
Write to Chuin-Wei Yap at chuin-wei.yap@wsj.com and Esther Fung at esther.fung@wsj.com
***
Chân thành cám ơn Quý Anh Chị ghé thăm "conbenho Nguyễn Hoài Trang Blog".
Xin được lắng nghe ý kiến chia sẻ của Quý Anh Chị trực tiếp tại Diễn Đàn Paltalk: 1Latdo Tapdoan Vietgian CSVN Phanquoc Bannuoc .
Kính chúc Sức Khỏe Quý Anh Chị .
conbenho
Tiểu Muội quantu
Nguyễn Hoài Trang
12082015
___________
Cộng sản Việt Nam là TỘI ÁC
Bao che, dung dưỡng TỘI ÁC là ĐỒNG LÕA với TỘI ÁC
No comments:
Post a Comment