Chinese bonds: credit enhancement evolves

Author: Ashley Lee | Published: 10 Dec 2014

Chinese companies can now use onshore assets to guarantee bonds as long as proceeds will be used offshore. But credit enhancement structures such as keepwell deeds and EIPUs will develop as long as issuers plan to remit cash onshore.

Real estate developer Greenland Hong Kong sold the first bonds with onshore guarantees under the State Administration of Foreign Exchange’s (Safe) new rules in June.

But few guaranteed deals have followed due to a requirement that all proceeds of guaranteed bonds be used offshore. Instead issuers have preferred older credit enhancement structures such as keepwell deeds and standby letters of credit (SBLC).

Panelists speaking at the IFLR Asia Capital Markets Forum last Thursday agreed that would likely continue: "Our view is that keepwell deeds...