Date
25 September 2017
Many Chinese firms are heading to Europe to take advantage of the ultra-low financing cost there. Photo: Reuters
Many Chinese firms are heading to Europe to take advantage of the ultra-low financing cost there. Photo: Reuters

The lure of cheap funds overseas

Cheaper financing cost is the main reason why several mainland Chinese firms are raising money overseas.

While the average interest cost for the “big four” state-owned commercial banks at home has climbed to 4 percent this year, the European Central Bank has lowered its benchmark deposit rate to levels below zero. The relatively easy monetary policy has created a favorable environment for Chinese firms to raise funds abroad.

Media reports say the big four banks issued renminbi bonds worth 75 billion yuan in Europe in the first five months this year. Two-year RMB bonds yield around 3.25.-3.5%.

Not only in home currency, some issuers are also tapping foreign-currency bonds.

For example, China Construction Bank issued a five-year Swiss franc bond with a coupon of 1.375 percent, the Economic Observer reports.

Japan has also emerged as an ideal fundraising market for some private firms. Economic Daily reports that some Chinese private firms were able to set interest rate at only about 1 percent for bonds they issued in Japan.

Analysts say raising capital overseas to directly fund mergers and acquisitions in foreign countries can be a feasible means to hedge against fluctuation in exchange rates and government restrictions.

– Contact the writer at frankchen@hkej.com 

RC

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