4 Nov 2015
CNY: Swap loans with bonds to ease debt repayment pressure – Rabobank
FXStreet (Delhi) – Michael Every, Research Analyst at Rabobank, notes that a PBoC researcher writing in the important Securities Journal has proposed a swap of CNY10 trillion (USD1.6 trillion!) of corporate bank loans with bonds to “ease debt repayment pressure”.
Key Quotes
“Presumably these debt repayment pressures stem from the fact that the loans should not have been made in the first place; and presumably these bonds are going to carry a much lower interest rate than the bank loans.”
“For now this is a trial balloon, but recall that the same thing has already been done with local government debt this year. What lucky individual is going to end up holding these new low-yield, high-risk corporate bonds? Last time it was backstopped by the PBoC. Ironically, this is happening just ahead of the IMF decision on China’s entry into its Special Drawing Rights (SDR), technically making it a reserve currency, which is apparently supporting CNY.”
Key Quotes
“Presumably these debt repayment pressures stem from the fact that the loans should not have been made in the first place; and presumably these bonds are going to carry a much lower interest rate than the bank loans.”
“For now this is a trial balloon, but recall that the same thing has already been done with local government debt this year. What lucky individual is going to end up holding these new low-yield, high-risk corporate bonds? Last time it was backstopped by the PBoC. Ironically, this is happening just ahead of the IMF decision on China’s entry into its Special Drawing Rights (SDR), technically making it a reserve currency, which is apparently supporting CNY.”