What’s on International Treasurer’s radar screen. 

This week’s International Treasurer editorial meeting produced several topics that we’ll be fleshing out over the coming weeks.

Shrinking bank credit capacity.
As goes the state of the economy (and the regulatory environment), so goes the health of the banks and their capacity to lend. Right now, the economy is looking like it will reverse course and as such, some companies are preparing for worst-case scenarios on access to bank credit. This subject was part of one company’s presentation at a NeuGroup’s Engineering & Construction Peer Group (E&CTPG) meeting earlier this year. Specifically, this company was worried about rolling over a hedge and having its bank tell the company it didn’t have the capital to handle the rollover.

Also, do new Dodd-Frank rules incentivize addressing cleared trades over uncleared trades? Will this further tighten the screws around corporate hedging?

Tighter bank credit ahead?
The Wall Street Journal reports that investors are fleeing high-yield bonds sold by the riskiest US companies, which is an “ominous sign for low-rated companies hoping to tap the bond markets and private-equity firms trying to finance leveraged buyouts.”

Junk bonds were enjoying a good year up to the latest pullback in the economic recovery, as was debt issued by higher quality companies. The question is: as new bank capital requirements kick in along with other regulations, will this malaise spread upward to those better credits?

Dim sum bonds not so tasty?
Some companies are finding there is an unappetizing side to dim sum bond issuance; specifically, transferring the proceeds into Mainland China. Currently, there are two distinct currency exchange rates for onshore mainland renminbi CNY, and offshore Hong Kong renminbi CNH. For the dim sum bond denominated in CNH, there are restrictions on the use of the proceeds, and China requires approval for each CNH remittance from up to three different state agencies – SAFE (the foreign exchange regulator), MOC (the ministry of commerce) and PBC (People’s Bank of China) – creating red tape and lengthy processes for foreign companies.

But like many things treasury, and treasury in China generally, this is not the case for everyone. Some sources have told IT that permission to bring money to the mainland for working capital, such as M&A transactions and other development projects, is fairly easily granted. Although there have been reports that say for the purpose of refinancing and arbitrage against domestic rates, there has been difficulty.