Qianhai Financial Holdings of China has successfully launched a renminbi denominated bond issued in Hong Kong.

The bond is backed by a standy letter of credit (L/C) issued by China Development Bank, a part of the structuring of these offshore renminbi denominated bonds that has caused concern in some quarters.

Investor confidence

The standby has given investors more confidence in the deal according to Moody's, which rated the bonds Aa3, citing the support of the standby L/C as a key factor.

Concerns have been expressed about the level of investor risk contained in this type of bond.

Legal advice

While conceding that the legal certainty of these issuances has yet to be tested in court, Moody's says its legal advisers say that an issuing bank's obligations under a standby L/C are legal, valid, binding and enforceable.

The ratings agency says the L/C enhanced bonds have two key advantages: protecting offshore investors and allowing issuers to reduce borrowing costs (DC World News, 31 July 2014).

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