Yuan Depreciation Risk Spurs Greenland Into $100 Million Hedge

Chinese developer Greenland Hong Kong Holdings Ltd. has moved to hedge its foreign-exchange risk after falls in the yuan. 

The builder has entered into forward contracts of $100 million to protect itself against yuan-dollar currency risk, it said in a filing to the Hong Kong stock exchange Wednesday. Greenland said it has borrowings denominated in the greenback while its earnings are mainly in the Chinese currency. Declines in the renminbi “may therefore impact the financial results of the group,” it said.

The yuan has fallen 3.9 percent against the dollar in the past year. That’s prompted Chinese firms to redeem $1.73 billion of overseas notes before maturity so far in 2016, up from $26 million a year earlier. Five of the six companies were builders. Developers have sold 79.39 billion yuan ($12.2 billion) of securities onshore in the first two months of this year, about four times the level of a year earlier, data compiled by Bloomberg show.

Most developers haven’t hedged their foreign-exchange exposure largely because of the high cost of doing so, according to Bank of China Hong Kong Ltd.

“Chinese developers would probably prefer to slowly lower their non-renminbi debt instead as many of their dollar bonds have callable features,” said Ross Lee, a credit analyst at Bank of China Hong Kong. “So they will call their dollar bonds early and issue bonds onshore.”

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