China Inc. `bleed­ing' from Yuan de­val­u­a­tion seeks hedg­ing help

The Pak Banker - - COMPANIES/BOSS -

SHANG­HAI: Chi­nese com­pa­nies are seek­ing hedg­ing ser­vices like never be­fore af­ter the yuan slid to a five-year low ear­lier this year. Fi­nan­cial ser­vice provider KVB Kun­lun Global Cap­i­tal Ltd. fore­casts its for­eign-ex­change hedg­ing busi­ness will dou­ble this year, as fears of fur­ther yuan drops linger even af­ter the cur­rency re­bounded in re­cent weeks. Hedg­ing vol­umes at the firm jumped more than 50 per­cent in Jan­uary-Fe­bru­ary from a year ear­lier, the sharpest two-month in­crease ever. Busi­ness also picked up at banks such as BNP Paribas SA, Hang Seng Bank Ltd. and Bank of China Hong Kong Ltd.

The yuan de­val­u­a­tion in Au­gust sig­naled an end to a decade of strength­en­ing that had en­cour­aged Chi­nese firms to be­come Asia's big­gest dol­lar bor­row­ers and to largely ig­nore pro­tec­tion against ex­change-rate re­ver­sals. A 4.4 per­cent tum­ble in the cur­rency in 2015 caught out some com­pa­nies, in­clud­ing de­vel­oper Coun­try Gar­den Hold­ings Co., which re­ported a 1.64 bil­lion yuan ($253 mil­lion) net FX loss on fi­nanc­ing ac­tiv­i­ties in the year.

"Many Chi­nese com­pa­nies are bleed­ing af­ter the shock de­val­u­a­tion of the yuan in Au­gust," said David Zheng, global deal­ing man­ager at KVB Kun­lun Global Cap­i­tal. "Al­though the yuan re­bounded re­cently, more com­pa­nies now be­lieve the cur­rency can go ei­ther way in­stead of just mov­ing in one di­rec­tion up as be­fore."

"Coun­try Gar­den will con­tinue to cut dol­lar ex­po­sure and use lo­cal fi­nanc­ing for lo­cal projects," the com­pany said in an e-mailed re­ply to ques­tions. "Be­sides that we have done some FX hedg­ing deals for ren­minbi/U.S. dol­lar bor­row­ing."

Green­land Hong Kong Hold­ings Ltd. said this month it has en­tered into for­ward con­tracts of $100 mil­lion to pro­tect it­self against yuan-dol­lar cur­rency risk. China SCE Prop­erty Hold­ings Ltd. is in close con­tact with banks for po­ten­tial FX hedg­ing and will "take ac­tion at the right time," the de­vel­oper's fi­nance con­troller Paul Li told a March 18 briefing.

"Our FX hedg­ing busi­ness has risen a lot this year, mainly the dol­lar-yuan pair, be­cause Chi­nese com­pa­nies are more ea­ger to do FX hedg­ing due to the volatil­ity in the yuan and po­ten­tial fu­ture de­pre­ci­a­tion pres­sure," said Frank Kwong, head of pri­mary mar­kets for Asia Pa­cific at BNP Paribas in Hong Kong. "We see some is­suers that may want to re­deem their dol­lar bonds early are hedg­ing their FX ex­po­sure till early re­demp­tion."

Green­land Hong Kong Hold­ings Ltd. said this month it has en­tered into for­ward con­tracts of $100 mil­lion to pro­tect it­self against yuan-dol­lar cur­rency risk. China SCE Prop­erty Hold­ings Ltd. is in close con­tact with banks for po­ten­tial FX hedg­ing and will "take ac­tion at the right time," the de­vel­oper's fi­nance con­troller Paul Li told a March 18 briefing.

"Our FX hedg­ing busi­ness has risen a lot this year, mainly the dol­lar-yuan pair, be­cause Chi­nese com­pa­nies are more ea­ger to do FX hedg­ing due to the volatil­ity in the yuan and po­ten­tial fu­ture de­pre­ci­a­tion pres­sure," said Frank Kwong, head of pri­mary mar­kets for Asia Pa­cific at BNP Paribas in Hong Kong. "We see some is­suers that may want to re­deem their dol­lar bonds early are hedg­ing their FX ex­po­sure till early re­demp­tion."

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