China delays foreign debt sales with US$100 billion of bonds due

[BEIJING] China is tightening approvals for overseas borrowings, leading some companies to scurry for cash with around US$100 billion of bonds coming due this year.

The National Development and Reform Commission (NDRC) is taking four to six months to approve quotas for bonds and loans with tenors of one-year or longer, according to sources familiar with the matter, which is about twice as long as before. In some cases, the process stretches to nine months, they said, asking not to be identified as they are not authorised to speak publicly.

The lengthened process comes from the regulator asking for more details about repayment and use of proceeds from late 2025, the sources added.

To avoid defaulting on their overseas debt, Chinese companies are resorting to selling short-term bonds, making it harder for them to balance investment needs with cash flows. The higher bar suggests the NDRC is escalating its efforts to rein in ballooning debt incurred by weaker enterprises and local government financing vehicles, or LGFVs.

For some borrowers, approval can come as late as one-month before existing bonds are due, the sources said, leading to significant uncertainty for investors.

The NDRC did not respond to a request seeking comment.

The spillover from the tighter scrutiny can be seen in how Chinese firms have raised at least US$2.3 billion so far this year from selling overseas bonds maturing in less than 12 months, which does not require the NDRC’s approval. The amount is a record for the period.

“The level of detail and the questions the NDRC is asking are far more intensive now than they were one-year ago,” said Mahesh Ahlawat, head of Asia-Pacific Equity-Linked Capital Markets at JPMorgan Chase, who is in charge of the bank’s convertible bond business in the region. “It now sometimes takes four to five months for a company to obtain that approval.”

The tighter oversight and approval delays have affected both LGFVs and other firms, said the sources familiar with the matter. In addition to those short-dated offshore bonds, borrowers have also turned to onshore bank loans that are outside NDRC’s jurisdiction, they added.

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China’s leadership has embarked on a campaign over the past decade or so to arrest a rapid buildup of off-balance-sheet debt by local governments, which mostly exists in the form of LGFV bonds and loans. The financing vehicles played a pivotal role in Beijing’s funding of an infrastructure boom to cushion the blow of the 2008 global financial crisis.

To be sure, some companies with stronger credit profiles or in industries backed by the state have continued to receive foreign-debt approvals from the NDRC within about three months, according to the sources familiar with the matter.

The longer quota application process also prompted some borrowers and lenders to bring forward refinancing decisions.

One global bank’s Hong Kong unit, for example, chose to roll over an onshore client’s offshore loan well ahead of its year-end maturity, as they have seen cases in which the NDRC’s approval took eight to nine months, said one of the sources.

The regulatory uncertainties come at a time when Chinese companies are staring at about US$100 billion of offshore bonds due later this year, based on data compiled by Bloomberg. The refinancing pressures will intensify further next year, when the maturity wall peaks at US$131 billion. BLOOMBERG