Glass firm first into the junk debt market

PUBLISHED : Saturday, 09 June, 2012, 12:00am
UPDATED : Saturday, 09 June, 2012, 12:00am


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The mainland's high-yield-bond market launched yesterday as Suzhou Huadong Coating Glass successfully sold 50 million yuan worth of two-year debt at an annualised interest rate of 9.5 per cent on the Shanghai Stock Exchange.

The bond offering will open the floodgates for thousands of small- and medium-sized companies to raise much-needed funds as Beijing provides them with an alternative financing channel.

The Shanghai bourse said in a statement that seven companies, including Huadong Coating, had been allowed to offer the riskier high-yield bonds since yesterday.

The plan to launch the high-yield bonds - junk debt offered by lower-grade firms - was unveiled in February. China Securities Regulatory Commission (CSRC) chairman Guo Shuqing saw in it a way to bolster cash-hungry small businesses.

It took only three months for the plan to materialise - unusually quick for the mainland's securities industry, which has spent nearly a decade preparing for the creation of a Nasdaq-style start-up board.

The fast-tracking of the junk debt market reflects the efficiency of the CSRC under Guo, a reform-minded technocrat who took office last year.

'The quick launch was no easy job because there were worries about the small firms' solvency,' said Gang Meng, a ratings director at Dagong Global Credit Rating. 'More liberalisation of the mainland bond market are expected during Guo's tenure.'

Earlier, mainland regulators allowed only firms with credit ratings of AA and above to sell debt on the bond market, though laws didn't bar bond issues by small businesses. Currently, there's no rating requirement on companies seeking to offer junk debts.

Small businesses are grappling with financing difficulties since commercial banks have been reluctant to extend them credit.

Beijing has talked of making policies to support small companies but has done little in concrete terms to effectively benefit them. Small firms in Wenzhou, the mainland's hub for private businesses, have long resorted to the illegal underground banking system for survival.

A raft of scandals involving the collapse of underground banks in Wenzhou last year prompted the central government to encourage bank to lend to small businesses.

The creation of the high-yield- bond market could also benefit small businesses struggling to survive the economic slowdown.

The interest rate offered by Huadong Coating is in line with market expectations. Analysts had predicted high-yield bond issuers to offer interest rates three times the central bank's benchmark rates.

The benchmark one-year lending rate stands at 3.25 per cent following a quarter percentage point cut by the People's Bank of China on Thursday.


Amount of two-year debt in yuan that Suzhou Huadong Coating Glass sold at an annualised interest rate of 9.5 per cent yesterday