ON THE SIDELINES OF THE FT ANZ RMB GROWTH STRATEGY SERIES, SPRING AIRLINES CFO CHEN KE SAID DOWN WITH BLUENOTES TO DISCUSS THE FINER POINTS OF THE RMB AND FOREIGN INVESTMENT.
Elsa Huang: Thank you for talking to BlueNotes. As we know, the PBOC has allowed foreign investors to enter the inter-bank bond market recently. With this policy, will RMB financing costs be reduced in the onshore bond market?
Chen Ke: Given the rich liquidity conditions in China since last year, the PBOC has eased monetary policy in a successful bid to boost the bond market.
In this context, Chinese companies will have one more financing channel in the domestic bond market besides bank loans, IPO and debt or equity issuing in overseas markets.
Thanks to the policy and continued monetary easing, it will provide a better financing channel with a number of companies looking for new or replacement capital.
Huang: There are two markets to be considered for RMB financing – onshore and offshore. As a CFO, what are the key factors you consider when to choose between the two, on top of cost?
Chen: The first one I consider is the purpose of the financing. For an airline company, we raise money to buy new planes overseas; there is no difference for us to do financing in onshore or offshore markets.
The both-way financing models have no impact on our business as in onshore markets we can get official approval from National Development and Reform Commission, depending on our complete background in trade for foreign exchange purchases.
For overseas payments and in offshore markets, it will be more convenient for us to issue bonds as we can pay Airbus directly.
The second factor is exchange fluctuations. We hope that the RMB can cover all capital expenditure and replace existing debt with US dollars and other foreign currencies from our own perspective.
When issuing bonds, we prefer RMB settlement but will still need to compare the cost. Currently, the financing cost onshore is superior to offshore.
The third one is the credit rating of the bond. For the whole airlines industry, it will increase the bond cost if we get the rating in offshore market.
As the overseas rating mechanism differ greatly from our domestic markets it is difficult to get a good rating overseas. But in China we get better recognition.
Those are my other considerations for financing, but the most important factor is still cost.
Huang: The RMB internationalisation discussion has gone on for a long time. What is your opinion on and the implementation of other financial reforms?
Chen: The RMB internationalisation has been continuing to move ahead since the PBOC introduced the policy two or three years ago. Although the process has been affected by the exchange rate, the main direction is still positive.
We established a cross-board RMB cash poll last year, which plays an important role for RMB inflow and outflow and our management of capital liquidity and risk control. We can get better opportunities and products by for hedging the risk and improving our revenues.
With the increasing status of the RMB, it will be helpful for companies getting income dominated in RMB to do business with vendors, in terms of payment and settlement. I believe it will be a trend for major airline manufacturers, to accept the RMB settlement in the next few years.