China: Yuan spurs airlines to cut losses with sale of local bonds

China’s airlines, rushing to pare dollar debt as a weakening yuan adds to servicing costs, are selling local-currency bonds at the fastest pace since 2009 to trim their exposure to the greenback. The nation’s carriers, led by China Eastern Airlines Corp., have sold a combined 106.3b yuan ($16b) of bonds in the first seven months of this year, a fivefold increase from the same period last year. An unexpected devaluation of the yuan last year led to an 18-fold surge in foreign-exchange losses to about $2.5b for the top three operators, as dollar debt accounted for as much as 80% of their total, the data show. Cutting exposure to dollar debt particularly benefits import-heavy industries like airlines, which borrow in the US currency to pay for aircraft, said Richard Zhang, an analyst at First Shanghai Securities. While the Chinese currency’s depreciation means carriers will have to raise more yuan to pay off the same amount in dollars, the extra cost incurred will still be less than the loss to be booked if they maintain foreign debt, according to UOB Kay Hian Holdings. “They are rapidly deleveraging the U.S.-dollar debt exposure,” said K. Ajith, an analyst at UOB Kay Hian Holdings in Singapore. “More bond sales are expected this year as the market expects yuan depreciation this year and next.”<br/>