Agricultural Development Bank of China will issue more offshore renminbi-denominated bonds this year to raise a large amount of capital and reduce the cost of bond issuance, [Company Incorporation USA]a bank official said on Thursday.

The State-owned agricultural policy bank faces a sharp increase in capital demands, especially for medium- to long-term funding, as it is strengthening efforts to support major water projects, urban-rural integration and poverty alleviation.

At present, its annual debt issuance has reached 800 billion yuan ($129 billion), up 40 percent year-on-year, said Liu Dinghua, general manager of the bank's funds planning department.

Meanwhile, China's interest rate liberalization has significantly increased the cost of bond issuance. During the period of liquidity strain in 2014, the lender's debt issuance costs went up by nearly 200 basis points.

On the other hand, the People's Bank of China, the central bank, lowered the benchmark lending rates three times in the first half of this year. It caused a drop of 19 billion yuan in the lender's interest income from loans.

"In spite of the challenges, we will still rely on domestic and international markets for capital raising," Liu said. "Issuing offshore renminbi-denominated bonds will help lower our fundraising costs."

Last year, the interest rates of offshore renminbi-denominated bonds were about 200 basis points lower than that of onshore yuan debts, he said.

In addition, the bank will also seek more monetary policy support, such as re-lending, from the People's Bank of China and financial support from the central government.

In April, the State Council approved the reform plans of three policy lenders, including Agricultural Development Bank of China. It required the lender to manage policy-oriented business and operational business on separate accounts to clarify responsibilities.

The relevant government departments are discussing the standards on how to define these two kinds of businesses, said the bank's spokesman Sun Lansheng.

Established in 1994, Agricultural Development Bank of China is a wholly State-owned lender specialized in providing financial support for agricultural and rural development.

As of June 30, [Hong Kong Company Registration Guide]its outstanding loans hit 3.1 trillion yuan, up 9 percent from the beginning of this year. During the first six months, new loans reached 740.7 billion yuan, rising 7.4 percent from the previous year.

The loans were mainly used to fund grain and oil purchase, large water projects, rural shantytown renovation, urbanization and poverty alleviation, Sun said.