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Chinese firms could handle 10% yuan depreciation, Moody's says

China's yuan shot higher in offshore markets on Thursday on suspected intervention by Chinese state banks, putting the offshore rate on track for its biggest daily gain on record.

[BEIJING] Chinese companies with debt denominated in foreign currencies have sufficient cushioning to weather a 10 per cent depreciation of the yuan, Moody's Investors Service said in a report after studying 70 rated companies.

The companies analyzed in the report had 48 per cent of their debt denominated in foreign currencies at the end of 2014, Moody's analysts led by Lina Choi and Gerwin Ho wrote in a note.

Alibaba Group Holdings Ltd, Tencent Holdings Ltd and Baidu Inc are in net cash positions of dollars, while Chinese state-owned players such as CNOOC Ltd, China Oilfield Services Ltd, Shanghai Electric Group Co and China Resources Gas Group Co have financial strength and government support to deal with a weaker yuan.

The findings may provide some comfort to authorities as they prop up the yuan after a surprise Aug 11 depreciation triggered concerns of further weakness. The People's Bank of China has intervened in the foreign exchange market, while Premier Li Keqiang signaled support for the currency, saying late last week that there was no basis for continued depreciation.

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Moody's analysts found that only four companies, including Yanzhou Coal Mining Ltd and China Oil and Gas Group, may see their debt metrics worsen to a degree that can add downward pressure on their ratings.

Some Chinese agencies involved in economic affairs have begun to assume in their research that the yuan will weaken to 7 to the dollar by the end of the year, people familiar with the matter told Bloomberg last week.

In the latest move to shore up the yuan, the PBOC will impose a reserve requirement on financial institutions trading in foreign-exchange forwards for clients, making it more costly for traders of forwards contracts to bet on swings in the currency.