The share of keep well-backed loans in the Chinese offshore syndicated- and club-loans volumes has fallen well below that of borrowings supported by letters of comforts (LoCs) so far this year, reversing a trend from 2016.

Of the borrowings which used these credit enhancements so far this year, keep wells accounted for only 12% of the volumes, while the other 88% are supported by LoCs. Keepwells’ share in the mix was 58% in 2016, 52% in 2017, 75% in 2018, and a whopping 92% in 2019.

So far this year, USD 2.02bn Chinese offshore syndicated and club loans have included one of these enhancements. For the entire 2019, USD 12.32bn of loans were supported by these structures and the volumes have been increasing each year since 2016 when USD 1.81bn was recorded.

However, keep well- and LoC-backed loans represent only a small portion of the overall Chinese offshore-loan volumes, accounting for 7.8% of the total in 2020 YTD. In 2019 and 2018, they contributed 12.8% and 11.4%, respectively.

The legal validity of keep well-backed bonds has recently come into focus with Peking University Founder  Group’s Chinese bankruptcy administrators leaving claims on bonds backed by this structure pending and a Shanghai court reserving judgment on such claims by CEFC China Energy bondholders.

State-owned Beijing Automotive Group is currently in the market with an LoC-backed EUR  700m-equivalent loan, Debtwire reported on 19 May.

Related links

Debtwire Legal Analysis: a primer on keep-well based  claims

Debtwire Par chart: Keepwells back 19% of Chinese HY  bonds YTD

Jason Huang-Jones APAC Data Manager Debtwire