Chinese credit enhancements dominate bonds

Author: Ashley Lee | Published: 29 Apr 2015

Chinese corporate issuers are now able to guarantee their bonds, but regulatory restraints mean that support mechanisms remain popular according to investors active in the country.

Although a new guarantee regime was announced last year, companies continue to sell bonds through offshore holding companies supported by credit enhancement mechanisms; the new scheme requires proceeds to be used offshore.

Most issuers want to use proceeds onshore, so their notes continue to include keepwell structures, which can be implemented through mechanisms such as equity interest purchase undertakings and liquidity support facilities. Others utilise standby letters of credit (SBLCs).

But investors must know...