Despite new rules issued last month by the Chinese authorities, this month has seen a flurry of standby letter of credit (L/C) enhanced bond issues.

The new rules are intended to make it less likely that issuers will need to use standby L/Cs or guarantees to strengthen offshore offerings (DC World News, 29 May 2014).

New issues

The first two weeks of June saw the launch of three standby L/C-backed bonds, bringing the total for 2014 up to eight.

Metallurgical Corporation of China, Rizhao PortandZhufai Huafa Group have all launched such bonds this month.

Investor preferences

Market sources say investors would prefer issues guaranteed by an onshore parent, but as these are hard to come by, issues backed by either a standby L/C or a keepwell deed provide the next best option.

The new rules announced last month allow onshore companies to register cross-border payment guarantees, instead of seeking approvals in advance.

But the perceived advantage of the credit enhanced issue is that there are no regulatory hurdles.

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