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Hedging a USD investment in Chinese property
Case studies

Hedging a USD investment in Chinese property

$157 $157 million hedging
2 Two year maturity
$300 $300 thousand savings
Background
  • JCRA was engaged to advise on the optimal 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
Our Approach
  • We gained an in depth understanding of the borrower’s business plan for the asset in order to establish hedging objectives.
  • JCRA presented a range of hedging strategies to the client. Each strategy was reviewed with the client, explaining the advantages and disadvantages in the context of their hedging objectives.
  • JCRA recommended the most suitable approach to the client, based on the review of strategies and subsequent discussion.
  • Pricing was discussed with the lending bank and a reduction in the spread on the chosen strategy was negotiated, with the execution call ensuring this was adhered to by the bank.
Benefits
  • 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 of JCRA that, if asked of the bank, could have had pricing implications.
  • The pricing 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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