CHINESE companies that have borrowed heavily in global dollar debt markets are increasingly planning early repayments of their U.S. dollar-denominated loans and bonds as the yuan’s weakness extends into the new year.

    Bankers say the expected yuan depreciation over the next few years as U.S. interest rates head higher and China’s interest rates take the opposite track will push more companies to follow suit to reduce exposure to dollar debt.

    China SCE Property Holdings Ltd. said Wednesday that it would redeem its US$350 million senior note due 2017, while another real estate firm, SUNAC China Holdings Ltd., said it had completed the redemption of its dollar note due next year.

    Under normal circumstances, non-investment-grade companies rarely redeem bonds early as they don’t always have easy access to refinancing, but that is changing as the yuan’s fall deepens and financing channels in China become available.

    “Most of the companies we talked to are waiting for the call option dates to arrive to redeem their bonds. The yuan has weakened sharply and funding costs in China’s domestic market have become much cheaper now,” said a debt capital market (DCM) banker in Hong Kong.

    Dollar bond issuances by Chinese companies started to pick up in 2013 and many of them carried call options that usually allowed issuers to redeem bonds three years later, so there could soon be a flurry.

    “Issuers started to contact us in September to ask about early redemptions of their dollar bonds, and such redemptions gradually came out since the end of last year,” said a DCM banker at a Chinese bank in Hong Kong.

    “Even for companies that have sold dollar bonds without call options, many of them are consulting with us on how to redeem them ahead of due time,” the banker said. (SD-Agencies)