Yuan Slip Has Chinese Firms Unloading Dollar Bonds

The Chinese yuan saw another dip last week, and analysts expect more bumpy roads ahead for the currency. That will have some significant implications for multinational corporations, according to reports.

Reuters reported Friday (Jan. 8) that one of those implications is a rise in early dollar debt repayments by Chinese corporations.

With analysts expecting the yuan to slide further over the next few years and with the U.S. interest rate expected to climb, Chinese corporations are preparing by paying off these U.S. dollar-based loans and bonds early. Reports said that other companies are expected to follow suit in this trend moving forward.

According to reports, China SCE Property Holdings Limited is one company adopting this strategy, announcing Wednesday (Jan. 6) that it will repay $350 million on a loan not due until 2017. SUNAC China Holdings Limited similarly announced that it would entirely repay its dollar note, also due in 2017.

Reports added that this is unusual. “Under normal circumstances, non-investment-grade companies rarely redeem bonds early as they don’t always have easy access to refinancing,” the newswire stated, “but that is changing as the yuan’s fall deepens and financing channels in China become available.”

Dollar-based loans rose in popularity for companies in China in 2013, reports said, noting that many of those bonds included options that allow for early repayment by three years. That could mean 2016 sees a spike in such action.

One debt capital market banker at a Hong Kong-based Chinese bank told the newswire that he has seen interest in these early redemptions.

“Issuers started to contact us in September to ask about early redemptions of their dollar bonds, and such redemptions gradually came out since the end of the year,” the banker said. “Even for companies that have sold dollar bonds without call options, many of them are consulting with us on how to redeem them ahead of due time.”