Corporate debt move a watershed for market
Updated: 2007-12-19 10:32
The China Securities Regulatory Commission (CSRC) is trying to push the development of the corporate bond market. In the past, only large State-owned firms could issue bonds with the approval of the National Development and Reform Commission. But since June, all listed companies can apply to the CSRC for approval to issue fixed-interest debt instruments. Two companies have already issued long-term bonds to raise a combined 5.2 billion yuan. Many more issues are in the pipeline, bankers said.
"Compared with bank loans, the lower cost of raising renminbi bonds would be seen as a major advantage for a large number of foreign companies," said Nie. For example, the current interest rate on five-year bank loans ranges from 7.83 percent to 7.1 percent, while the current yield of a corporate bond with a five-year maturity is estimated at 6 percent - substantially lower in the long term even including the one-off issuing cost of about 1 to 2 percent of the amount raised. Foreign companies with high credit ratings can raise funds at an even lower yield.
Analysts said introducing foreign issuers, whose ratings are based on the international system, will bring China in line with international standards.
"It provides local rating agencies with opportunities to learn about the international rating standard," said Liu Xin, general manager of the fixed-income securities department at Guotai & Jun'an Securities in Shanghai.
Analysts also expect corporate bond issues by foreign companies will provide an alternative to local investors, both institutional and retail.
"Households may only have eyes for A shares and local investment funds today, but they will not be so enamored," said Green. "It (corporate bonds) will boost returns for local investors, giving them safe exposure to the companies who are succeeding in the world."
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