Use Offshore Bonds to Repay Debt, Developers Told

* National Development and Reform Development tells real estate developers to commit in writing to using funds raised through Chinese offshore bonds to refinance maturing bonds

* Regulator worries that scale of foreign borrowing has surpassed the borrowers’ ability to generate profits

(Beijing) — China’s top economic planner has a message for real estate developers issuing offshore bonds: Pay back your maturing debts first.

The statement highlights the growing concerns about debt defaults in China after many companies turned to issuing foreign debt as tighter domestic controls have limited fundraising channels at home.

In a statement published Wednesday on its website, the National Development and Reform Development (NDRC) told Chinese real estate developers to commit in writing to using funds raised through offshore bonds to refinance their maturing bonds to avoid defaults.

Developers should also refrain from investing the funds in domestic and foreign real estate projects or using them to bolster their cash flow, the commission said.

The NDRC said that Chinese firms issued $99.2 billion in offshore bonds from January to May, more or less unchanged from the same period in 2017.

The NDRC issued its message a month after it put out a notice warning that companies raising money through offshore bonds must comply with regulations and refrain from “blindly” piling on debt.

In Wednesday’s statement, the NDRC singled out real estate firms and local government financing platforms whose foreign debts have increased rapidly over the past two years, as the ongoing financial deleverage campaign pushed up borrowing costs in China.

The NDRC warned that the trend was worrisome because the scale of these companies’ borrowings has outstripped their ability to generate profits. In addition, some of the companies don’t earn revenue in foreign currencies, exposing them to the risk that a weakening yuan could make their debts more expensive to repay.

The NDRC said it will speed up drafting registration rules for companies issuing offshore bonds to consolidate information on offshore bond issuances. It also aims to step up oversight of such bonds over their entire life span.

This story has been corrected to clarify that the NDRC told real estate developers to commit to using the proceeds from all offshore bonds to refinance maturing debt.

Contact reporter Pan Che (chepan@caixin.com)