CIRC to let small insurers buy infrastructure debt

PUBLISHED : Tuesday, 05 August, 2008, 12:00am
UPDATED : Tuesday, 05 August, 2008, 12:00am

The mainland's insurance watchdog told a meeting in Ningxia late last week that most small and medium-sized insurers would be allowed to invest in infrastructure projects by buying up debts, according to an industry source.

The China Insurance Regulatory Commission said it would allow qualified insurers to engage in infrastructure debt financing, the source said.

So far, only four large insurers - Ping An Insurance (Group), China Pacific Insurance, Taikang Insurance and Tai Ping Insurance - have been permitted to buy into the 16 billion yuan (HK$18.22 billion) in debt financing of the high-speed rail link between Shanghai and Beijing.

The State Council approved indirect investment in infrastructure by insurance companies in December 2005 and related regulations were issued by the CIRC in March 2006.

Most mainland industry players were represented at the meeting in Yinchuan, the capital of Ningxia, to discuss elements of the policy such as the size of assets, team experience and credit rating of infrastructure investment.

The source said the CIRC was drafting regulations to cap investment in infrastructure at 8 per cent of an insurance company's total assets, of which 5 per cent would be for debt investment and 3 per cent for equity investment.

In contrast to the rules issued in 2006, which permitted insurance companies to invest in infrastructure through trusts, the new regulations would allow direct investment in projects based on certain criteria related to investment management capacity, the source said.

Given the overall insurance industry's 2.9 trillion yuan in assets as of the end of last year, up to 145 billion yuan could be invested through this process.

Another industry player said the 5 per cent debt-financing quota was lower than that allowed in developed economies, adding that the mainland regulator had to aim for steady development and risk prevention in the early stages.

Sinosafe Insurance Corp bond trader Gu Chunyue said there was great potential in infrastructure debt financing and the sector could equal trade in other types of bonds

However, Mr Gu noted that many insurance firms would have a long way to go before they could buy into the debt financing of infrastructure items or equity investment because only a few companies would be able to meet CIRC requirements.

The source said the CIRC was also working on a pilot plan for equity investment in infrastructure.