Alternative financing routes for energy-intensive companies

The managing partner of Shearman & Sterling's Shanghai office, Andrew Ruff suggests one strategy for energy-intensive companies to receive financing could be to target foreign banks. However, he noted that there is often a general problem of limitations to borrowing renminbi from overseas lenders. “While some foreign banks have registered as domestic financial institutions, their renminbi quotas are generally not huge.”

Another method to receive financing could be to borrow on balance sheet offshore and push funds down as equity. Ruff cautions though that “the suitability of this or other structures would need to be determined on a project-by-project basis.”

While it's possible to be issued renminbi-denominated bonds, Ruff noted that multilaterals would require a policy basis for lending and that the “qualification of the project in question would need to be established.”

Commentators observed that electrolytic aluminum, ferroalloy, calcium carbide, caustic soda, cements, steel, yellow phosphorus, zinc, and iron smelting industries are being targeted by the PBOC curbing measures. “It is clearly one of a number of moves designed to address near-term shortfalls in installed electric capacity in China,” said Ruff.