New rules lift limits on China bonds
In an effort to open up China’s corporate bond market, the country’s top economic planning agency removed limits on the number of onshore bonds local companies can issue in a year
The National Development and Reform Commission (NDRC), which had previously set annual limits on the number of corporate bonds that could be issued by each industry, on Wednesday streamlined the regulations for issuers of corporate debt rated AA and above.
Analysts believe the new moves will bring in more liquid and longer-dated bonds that will boost the declining asset quality of corporate bonds and help
banks better manage non-performing loans, reported Reuters.
“Companies will issue bonds with a maturity far down the road and use the proceeds to repay bank debts due and past due,” Ted D.E. Osborn, Hong Kong-based partner at PricewaterhouseCoopers told Reuters. “The key will be the take up of the bond issuances and whether they are re-financed down the road.”
The new rules also allow up to 40% of bond issue proceeds to be used to pay off bank loans and supplement operating capital, but they will not be able to reinvest proceeds into “high-risk areas” such as stocks.
The new reforms are intended to cut bureaucratic red tape in the country’s highly fragmented bond market. Currently, three different regulators, the NDRC, the China Securities Regulatory Commission (CSRC), and the People’s Bank of China, regulate the issuance of bonds based on their ownership structure and on where the bonds are traded.