MNI EXCLUSIVE: China Corporate Dollar Bond Sales May Slow

--Restrictions Impeding Property Company Issuance

--Dollar Crunch Threat Could Prompt Higher Defaults

     BEIJING (MNI) - Chinese issuance of offshore corporate dollar bonds is

likely to slow in 2020 as borrowers factor in the possibility of a recurrence of

March's worldwide dollar shortage and as raising money at home becomes cheaper,

policy advisors told MNI, noting that regulations were also limiting plans by

property developers and local government funding vehicles to raise cash.

     Property developers, whose USD222.5 billion in outstanding dollar bonds

accounted for 25.5% of overseas Chinese corporate dollar bonds as of the end of

Q1, have been restricted to short-term rollovers since last June, noted Chang

Shuyu, a researcher at the Chinese Academy of Social Sciences. Together with

China's oil and gas sector, and the transportation sector, the country's

property borrowers also run a risk of a mismatch between dollar liabilities and

their ability to raise U.S. currency, Chang said.

     --ROLLOVERS

     Some developers might find it difficult to roll over dollar-denominated

debt if there is any repeat of the liquidity crunch in the U.S currency seen in

March, or if their businesses face trouble, given their relatively high funding

costs, according to Chang. A drought of greenbacks would also increase the

default risk on dollar bonds, she said.

     Tan Yaling, head of the China Forex Investment Research Institute, also saw

a possible increase in dollar defaults, as domestic defaults rise and because of

the medium-term impact of coronavirus on the global economy.

     Chinese corporate dollar defaults totaled USD1.1billion in Q1, up from

USD500 million in Q4 2019, according to Nomura. Chinese companies have a total

USD169.3 billion maturing in 2020, up from USD136.3 billion in 2019.

     Chinese companies' dollar issuance declined markedly through the

epidemic-hit Q1, falling from USD 29 billion in January to USD17.1 billion in

February and USD15 billion in March, Nomura noted.

     Last week, there was a near default on a Yida China Hong-Kong listed bond,

although funds were paid with a 24-hour delay.

     --FUTURE BRIGHTER

     Many economists, however, believe the comparatively healthy balance sheets

of most Chinese corporate issuers, mainly blue chip names, reduce any default

risk. Tan pointed to the example of local government funding vehicles, still

largely backed by regional authorities and still with considerable assets and

capital, despite downsizing in recent years.

     The outlook for the Chinese corporate dollar market remains bright over the

longer-term, Tan said, with borrowers encouraged to take advantage of cheap

funding in greenbacks by officials keen to show a willingness to promote use of

the U.S. currency in order to smooth relations with Washington.

     In early March, the People's Bank of China and the State Administration of

Foreign Exchange on March 12 revised their macro- prudential management

framework to ease constraints on domestic firms borrowing from overseas.

     However, Niu Li, vice-director of the National Information Centre's

Economic Forecasting Department, affiliated to the National Development and

Reform Commission, said any relaxation in regulating overseas borrowing should

be gradual and cautious.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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