China is considering stepping up approvals and disclosures for companies issuing offshore debt due to the surge in the number of defaults and broad distress in the property sector. According to a draft posted on the National Development and Reform Commission (NDRC) website, debt issuers including financial firms will be required to register, report and receive approval for raising offshore debt with a maturity of over 1Y from the NDRC. The government aims to promote the healthy and orderly development of companies’ overseas financing and prevent foreign debt risks. Also, in January the NDRC said that it can actively guide companies to optimize the structure of their foreign debt interest rates and maturity.
As per the draft, one new rule is that borrowers need to regularly submit information of their use of fundraising proceeds and report major situations impacting their debt repayment. In 2022 YTD, China’s property sector has witnessed record offshore defaults of $37.3bn as per Bloomberg data. In 1H 2022, dollar bond issuance by Chinese corporates fell to their lowest levels since 2016 on rising borrowing costs globally, the property sector meltdown and lockdown measures. Borrowers have rather tapped the local bond market where policy rates were lowered.
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