China sets new restrictions on companies’ foreign debt to curb risks

BEIJING (Reuters) – China is imposing more restrictions on companies which are trying to raise relatively low-cost funds overseas to help control their financing risks, the country’s state planner said on Thursday.

Local firms can sell debt overseas if the proceeds are used to support China’s economy, but they must “effectively prevent risks in medium- and long-term foreign debt and local debt risks”, the National Development and Reform Commission (NDRC) and the Ministry of Finance said in a joint circular.

Companies and financial institutions that plan to issue medium- to long-term foreign debt cannot ask for or accept guarantees from local governments for financing activities, according to the statement.

They will also be banned from disclosing information on possible government credit support when they issue bond prospectuses to potential investors, and credit rating agencies cannot link corporate credit with local government finances, the agencies said.

Firms seeking to raise medium- and long-term foreign debt should use interest rate swaps, forward foreign exchange trading, options, swaps and other financial products to hedge currency and interest rate risks, they said.

Firms that have invested foreign debt in investment projects must establish a market-based investment return mechanism to form stable and sustained revenues, they added.

China’s outstanding foreign debt rose to $1.71 trillion at the end of 2017 from $1.68 trillion at the end of September, according to the latest official data.

Property developers in particular have been keen to borrow overseas given tightening regulatory restrictions and rising rates at home.

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