March 18, 2022
A directive by the State Administration of Foreign Exchange (SAFE) did not change policies but the impact of stricter pre-issuance supervision was noticeable
Some regional branches of China’s foreign exchange regulator have strengthened supervision of overseas bond issuance by local government financing vehicles (LGFVs) to guard against debt risks.
A directive by the State Administration of Foreign Exchange (SAFE) did not change policies but the impact of stricter pre-issuance supervision was noticeable, Reuters was told.
“It’s definitely more difficult to talk about new issuance. In principle, you can only roll over maturing debt,” a source said.
A second source said the tightening was likely aimed at preventing weaker LGFVs from raising debt to head off risks for regional financing platforms.
“Previously (dollar debt issuance) was approved by the National Development and Reform Commission, and SAFE would only make note of it after the fact,” the source said. “Now SAFE may need to review the use of funds being raised.”
In a faxed response to Reuters’ questions, SAFE denied a tightening of regulations.
“The policy governing offshore issuance by local government investment enterprises has not changed, and will continue to be be implemented according to existing regulations,” it said.
The moves follow a steady string of defaults by Chinese issuers on their offshore debts, which has driven spreads on Chinese high-yield debt to record highs this week.
Goldman Sachs analysts estimated Friday that by one measure high-yield property issuers have defaulted on nearly a quarter of their outstanding bonds this year.
Reuters, with additional editing by George Russell