BEIJING (XFN-ASIA) - Yuan-denominated debt issues by multinational companies (MNCs) in China will help alleviate appreciation pressure on the yuan, Standard Chartered Bank said.
The bank said the issues would serve to lower foreign direct investment (FDI) inflows and lessen the need for foreign debt.
'Because of this, allowing MNCs to issue debt would go a little way to help solve China's excess liquidity problem, thus releasing appreciation pressure on the yuan,' Standard Chartered said.
The bank noted that allowing local corporates to raise debt does not have the same effect, as they involve only shifting the funds from one bank account to another.
'But allowing foreign corporates to issue debt could help since they may no longer then need to bring in additional funds from overseas. Lower FDI inflows would help the State Administration of Foreign Exchange (SAFE) with its FX reserves headache,' the bank said.
According to a survey the bank performed of CFOs and treasurers at 15 MNCs active in China, nine out of twelve said they would be interested in issuing such debt because of the low cost compared to bank loans.
'A one-year loan currently costs about 6 pct a year. Compare that with what the 3 pct or so that corporates pay on their short-term corporate bills,' Standard Chartered noted.
Local currency debt issues by MNCs would also help raise the returns to insurers, other institutional investors, as well as household savers by allowing them access to assets that pay better than bank deposits, government debt and central bank paper, the bank added.
But major regulatory obstacles remain.
'Only the Asian Development Bank and the IFC have raised yuan debt onshore, in experimental 10-year 1 bln yuan issues in 2005. Since then nothing substantial has happened, although we understand that MNC and locally-incorporated international bank issuance is being 'researched',' Standard Chartered said.
The bank said it hopes on-going reforms led by the China Securities Regulatory Commission (CSRC) will lead to substantive progress soon.
(1 usd = 7.68 yuan)
jianbo.wu@xfn.com
© 2007 AFX News