Our Off-shore Bonds
Offshore Debt
Definition
"Debt instruments borrowed by enterprises within the territory of the People's Republic of China and their controlled overseas enterprises or branches, denominated in domestic or foreign currency, with a maturity of one year (excluding) or more, and with agreed repayment of principal and interest."
Classification
Offshore debt can be further divided into Chinese-funded overseas bonds (denominated in foreign currency), offshore RMB bonds (denominated in RMB), and free trade zone bonds (denominated in RMB or foreign currency). Currently, most of the Chinese-funded overseas bonds in the market are denominated in US dollars, also known as Chinese dollar bonds; offshore RMB bonds are mainly dim sum bonds; free trade zone bonds are referred to as "onshore offshore bonds."
Urban Investment
Definition
Local government financing platforms refer to economic entities established by local governments and their departments and institutions through fiscal allocations or contributions of land, equity, and other assets. They undertake the financing functions of government investment projects and possess independent legal status.
Financial Insitutions
Definition
Offshore bond issuers in the financial sector include policy banks (e.g., China Development Bank), commercial banks (e.g., ICBC, Bank of China), and leasing firms (e.g., banks’ leasing subsidiaries). It also includes non-bank financial institutions such as insurance companies, securities firms, asset managers (e.g., AMCs), and diversified financial groups (e.g., trust companies, wealth management subsidiaries).
Corporates
Definition
Excluding LGFVs and financial institutions, corporates mainly refer to Chinese enterprises in various industries operating both domestically and abroad. This includes large technology companies, state-owned or private industrial firms, and those issuing bonds in global markets.
Opportunity Analysis and Debt Resolution Ideas
Debt Replacement - Strengthening Government Credit
To address hidden debts, the government is replacing high-interest debts with special refinancing bonds, a long-term strategy. A new round of these bonds is expected to launch this year, with 108.765 billion yuan planned for issuance nationwide, primarily in Guizhou and Tianjin. In 2023, 1.39 trillion yuan of these bonds were issued across various regions.
Banking Institution Funds - Fiscal and Financial Coordination
Banking institutions are encouraged to work together to replace high-interest debts. Local syndicate loans are key for this in heavily indebted regions. Strategies include swapping short-term loans for short-term ones and project financing for project financing. The "Central Emergency Liquidity Loans" have been initiated in Guangxi, expanding the scope of syndicate loan replacements to include credit bonds.
Regional Coordinated Planning - Level Up
Guizhou has implemented a unified borrowing and repayment policy twice, guiding weak regions to manage debts at the provincial level. This approach may be adopted by other key provinces, ensuring debt repayment for urban investment platforms. Adjustments in quotas may push weaker platforms out of the market, centralizing financing authority.
