The yuan devaluation on August 10, 2015 was the largest single-day devaluation since 1994. According to the Wall Street Journal, the daily fix was increased from 6.1162 on Monday to 6.2298 on Tuesday, representing a 1.9% devaluation.[1] What does that mean for China's offshore debt market?
According to Bloomberg, China's corporations have $529 billion worth of offshore debt.[2] On Monday, that was worth ¥3,235 billion. On Tuesday, that was worth ¥3,295 billion, representing a ¥60 billion increase in principle.
According to another Wall Street Journal article, the average interest rate for offshore Chinese debt is higher than 8.00%.[3] At 8.00%, the $529 billion debt burden would require $42.32 billion in interest payments every year. On Monday, those interest payments were worth ¥258 billion, but by Tuesday had increased to ¥263 billion. Overnight, the cost of offshore financing for Chinese companies increased by five billion yuan. Each news article indicates that Chinese companies have not hedged against currency fluctuations.
