China lifts bond issuance limits for some companies

Beijing seeking to cut red tape in bond market

China’s top economic planning agency has removed limits on the number of onshore bonds local companies can issue per year as part of wider moves to cut red tape in the country’s corporate bond market.

The National Development and Reform Commission’s (NDRC) new streamlined regulations announced yesterday will apply to issuers of corporate debt rated AA and above.

Previously, the NDRC set annual limits on the number of bonds corporates in specific regions and industries can issue.

Some analysts believe the steps are designed to improve declining asset quality as a more liquid and longer-dated bond market will help corporates better manage borrowings and banks better manage non-performing loans.

“Companies will issue bonds with a maturity far down the road and use the proceeds to repay bank debts due and past due,” said Ted D.E. Osborn, Hong Kong-based partner at PricewaterhouseCoopers.

“The key will be the take up of the bond issuances and whether they are refinanced down the road.” Also announced yesterday were new rules that allow up to 40 per cent of bond issue proceeds to be used to pay off bank loans and supplement operating capital. However, under new rules announced by the NDRC earlier this week, issuers will not be able to reinvest proceeds from bonds into “highrisk areas” such as stocks.

The new guidelines encourage insurers and reinsurers to develop protection products, such as default swaps and credit insurance, to divert risk.