Banks do not know what to make of reports that mainland regulators have banned bonds backed by standby letters of credit, the South China Morning Post reported Monday. Confusion reigns even for banks that have recently sold such bonds. No one understands what is happening, Yves Jacob, Asia-Pacific head of debt capital markets at Societe Generale, was quoted as saying. Last year, the People’s Bank of China (PBoC) was reported to have instructed the country’s big four lenders to stop issuing letters of credit backing offshore bonds issued by mainland companies. There was concern such deals undercut demand for their own bonds as issuers perceived them as all coming from the same credit. Also, the PBOC did not want the state banks piling on credit risk when they were already struggling with growing bad debt, the report said. However, since the reported ban, at least three bonds backed by standby letters of credit have hit offshore markets including one last week — a US$300 million three-year bond from Beijing Energy Investment, the report said.
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