BlackRock sees yuan depreciation as wakeup call for China debt hedging

The yuan's depreciation is a wakeup call for Chinese companies that rarely hedge overseas debts, according to BlackRock Inc and Aviva Investors Global Services Ltd.

China's second-biggest steelmaker Baosteel Group Corp, its largest auto rental company Car Inc and developer Country Garden Holdings Co said they are considering hedging after the Aug 11 depreciation. Rising demand pushed up the cost of such trades, with the extra interest payments to lenders of yuan in five-year cross-currency swaps jumping 0.53 percentage points in two weeks to 3.18 percent.

"Until recently lots of Chinese companies had regarded the dollar-yuan exchange rate as a one-way bet, therefore there was little need to hedge," said Tim Jagger, a Singapore-based portfolio manager at Aviva. "Clearly that relationship has changed and companies now need to do more hedging. But hedging costs have also gone up, so I expect only more conservative management will do that."