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case study

HEDGING A USD INVESTMENT IN CHINESE PROPERTY

Background

Our role was to advise on the best solution to fulfil the mandatory FX and Interest Rate hedging requirement.  The debt was split into an onshore CNY tranche and an offshore USD tranche.  The requirement was for 100% IR and FX hedging of the offshore tranche.

157m
$157m hedging
2
2 year maturity
300k
$300k savings

Factors to consider

  • Forward points work against the borrower
  • Business plan for the asset – hold period and possible sale timing
  • Keep the cost as low as possible as the hedging was a requirement of the loan, not a choice of the client
Speak to an expert

Jonathan Lye

Director

E: Jonathan.Lye@jcrauk.com
T: +44 (0)207 493 3310

Our approach

Gained an in-depth understanding of the borrower’s business plan for the asset in order to establish hedging objectives

Presented a range of hedging strategies to the client

Reviewed each strategy with the client explaining the advantages and disadvantages in the context of their hedging objectives.

Based on the review of strategies and subsequent discussion, recommended the most suitable approach

Discussed pricing with the lending bank and negotiated a reduction in the spread on the chosen strategy.

Managed the execution call ensuring that the agreed spreads were adhered to by the bank

Explore what we do

Benefits of our approach

  • The client was clear on the hedging strategies available and the implications in the context of the business plan
  • In the context of a trusted relationship the client was able to ask questions that, if asked of the bank, could have had pricing implications
  • The spread negotiations saved the client over $300k which was achieved through our knowledge and experience of the FX market
  • In addition to meeting the bank’s credit requirements the chosen hedging strategy met all the client’s hedging objectives

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How can we help you

Have you got a question about how you hedge your financial risks, or structure and arrange your debt?

Find out how we can help you by contacting us today.

 

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