Exclusive-Shanghais lockdown delays dollar buying, gives falling yuan reprieve

div classBodysc17zpet90 cdBBJodivpBy Winni Zhou and Tom Westbrookp

pSHANGHAISINGAPORE Reuters – Shanghai‘s COVID19 lockdown is wreaking havoc on companies’ dividendpayment paperwork and bankers say it is delaying summertime dollar buying as some firms are unable to collect the signatures and company seals needed to process FX contracts.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pOffshorelisted Chinese firms usually have to buy dollars to pay overseas shareholders from June to August, and typically start buying in May. Delays this year will relieve pressure on the yuan and some traders say it is providing a cushion, preventing the currency from falling at an even faster pace.p

pWhile some payments could be extracted from company balance sheets, many still need to go through banks to buy foreign exchange and three banking sources said COVID19 mobility restrictions in Shanghai, Chinas financial and commercial hub, were making the formalities very difficult.p

pCompanies usually register and report such dividend payments to regulators and announce the details of the plan in relevant disclosures before making requests to banks for crossborder money transfers, according to the sources. p

pThey said some corporate representatives told lenders that they were unable to sign the documents that banks required to proceed with purchases and payments as the executives were confined at home.p

p“Some companies discussed and came to ask banks for possible solutions,” said one senior banker with direct knowledge of the situation but who, like another two, requested anonymity because they were not authorised to discuss it publicly.p

pThey added that some executives had access to corporate online banking at home, but many did not have their official company stamps kept under lock and key in the office.p

pIn China, the traditional business practice of stamping documents with the official red company seal gives contracts and transactions legality. p

pThe jam is reminiscent of challenges forced upon western financial institutions in 2020 when lockdowns drove underwriters at Lloyds in London to abandon timehonoured facetoface dealings with emails and online approvals.p

pChinas restrictions are tighter and bigger. While it is early in the dividend season, banks say dollar demand during this period – around 70 billion last year – is barely anything when it would normally have started to pick up by the middle of May.p

p“Paperwork apparently got stuck,” said one foreign exchange banker.p

pSLOWDOWNp

pFortyone Chinese cities were under some kind of lockdown as of May 10, affecting nearly 300 million people, Nomura said in a research note published this week, estimating these cities contribute roughly 30 of the countrys gross domestic product.p

pShanghai has put the vast majority of its 25 million residents under lockdown since March 28. Most businesses and activities remain largely halted and the city is very cautious in easing stringent virus containment measures.p

pThe delays in corporate foreign exchange demand, even if only temporary, seem to be straining liquidity and reducing trade volumes in the interbank market.p

pA rising greenback and gloom over Chinas economic outlook has sent the yuan down more than 6 on the dollar in four weeks – the steepest drop in decades.p

p“The process of making FX purchases is getting slower, but the total amount of dividend payouts remains the same,” said Xing Zhaopeng, senior China strategist at ANZ.p

pHong Konglisted Chinese companies handed out more than 70 billion worth of dividend payments in 2021, official data shows. The volume could climb further to about HK680 billion 87 billion this year, according to Reuters calculations based on preliminary data from Refinitiv.p

p“We dont expect a material stepup of capital controls although we do believe the extended lockdown and stricter COVID containment measures will create some partial disruptions,” said Becky Liu, head of China macro strategy at Standard Chartered. p

p“While a rise of dividend payments will increase the need for dollars, the hefty FX deposits in China will likely provide a strong cushion and reduce the need for fresh new conversions.” p

p1 7.8499 Hong Kong dollarsp

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pp Editing by Jacqueline Wongp

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