Multinational corporations (MNCs) with large presence in the Chinese market hope that access to the renminbi-denominated bank funding both in China and in Hong Kong is made easier as they look for alternatives to the dim sum market.
This was part of the wish list of funding options expressed by panelists at at Euromoney Conference’s Global Offshore RMB Funding Forum held in Hong Kong on May 8.
“I fail to see in the market an evolving market for syndicate lending facilities in renminbi in the offshore market. This will be very useful because it balances risks between banks,” said Andreas Stolzenburg, head of corporate finance for Bosch und Siemens Hausgeraete in the panel. “The next step after this would be the launch of syndicated loans onshore, but this will be a wild dream.”
Most offshore renminbi-denominated syndicated loans are short in duration with an average tenor of one-year, notes Dickson Law, head of corporates group Asia, Hong Kong at BNP Paribas in the panel.
While the CNH Hibor – which will start its fixing in June – is expected to help with the development of the syndicated loan market offshore, financial institutions still have to look for ways to build up their renminbi pools in the meantime.
“CNH Hibor gives a benchmark to the market as to what the base rate will be,” said Law. “Next, the banks will need to establish a funding liability which is Hibor-based, stretching beyond one-year. They need to build their war chest before they are comfortable to extending loans.”
Project finance
The availability of onshore project financing was also raised by the panel with mixed experiences of trying to secure this type of funding. Hong Kong-based power company CLP Holding said it had so far met with a positive response from its bankers because of its position in the infrastructure sector.
“The lending banks support the infrastructure business. They like the cash flow stability that the business is able to produce,” said Francis Ho, group treasury for CLP Holdings. “Because of the integration of the offshore-onshore market in terms of lending rates, we believe it is less attractive for us to source CNH funding nowadays and remit it back to our onshore operations.”
In CLP’s case, the Hong Kong-based energy provider is able to obtain 10- to 12-year project leverage loans through onshore banks. The concern that the company has is whether it can generate the cash flow in time to meet the maturity of the loans.
“We always want to structure the payback of the loan with reference to our cash flow,” said CLP’s Ho. “Sometimes we structure a back-ended payment which will realise our investment returns.” This is unclear.
However, this positive response has not been the experience of all infrastructure companies.
“My experience with using project financing onshore is that it’s not easy. Most of the local Chinese banks are not familiar with project financing or they are not keen,” said John Ho, chief financial officer for Hong Kong and China Gas, better known as Towngas.
As a result, the utility company obtained most of its financing from offshore banks, primarily foreign banks that have extensive experience in offering this form of lending. However, because of capital account restrictions, global financial institutions are also concerned about the realisation of assets from companies with operations onshore.
“The only concern with project financing is that if anything goes wrong most of the foreign banks are very concerned about whether they can realise the asset when the project goes wrong onshore,” added Towngas’ Ho.