Offshore bonds issuance relaxed

Added 4th May 2016

China’s central bank has relaxed the rules for mainland corporates to issue offshore bonds, according to the People's Bank of China.

Offshore bonds issuance relaxed

The move comes at a time when the offshore bond market is shrinking amid cheaper onshore funding costs and concerns about the falling yuan and the strengthening US dollar.

Beginning May 3, financial institutions and corporates no longer need to gain approval from the authorities before issuance. The bonds can be denominated in either yuan or other foreign currencies.

The amount of issuance will be capped by a ratio linked with their net assets and risk-adjusted assets.

A pilot program was launched in January for 27 financial institutions and companies registered in the four free trade zones.

China’s foreign debts fell from $1.68trn in the second quarter of last year to $1.42trn at the end of 2015, according to State Administration of Foreign Exchange.

In particular, outstanding dim sum bonds (offshore yuan bonds) grew only 6% only to $86.7bn, the slowest on record. Dim sum bond issuance fell by 42% to $25.5bn last year, according to Fitch.

Dim sum bonds have about a 100-150 basis points premium as of last month, which discouraged more issuance.

But Fitch said to expect a pickup in the short-term as concerns ease over yuan depreciation. In the medium-term, offshore bonds should be supported by the internationalisation of the currency, particularly as China's one-belt-one-road initiative rolls out.

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