Corporate bond issues surge to 137.8b yuan

PUBLISHED : Thursday, 28 May, 2009, 12:00am
UPDATED : Thursday, 28 May, 2009, 12:00am

Mainland companies had raised a total 137.8 billion yuan (HK$156.47 billion) from corporate bond issues so far this year after the government opened the tap to funnel much-needed funds to prop up Beijing's 4 trillion yuan stimulus programme, Xinhua reported yesterday.

The value of the corporate bond issues on the mainland has soared over the past few years, rising from 30 billion yuan in 2004 to 236.69 billion yuan last year.

Xu Lin, an official with the National Development and Reform Commission, which is responsible for vetting company debt issues, estimated that a record 600 billion yuan would be issued this year.

The surge reflects an increased need for funding to keep the stimulus package going, since initial public offerings are still frozen.

But some analysts warn credit risks are already emerging in the bond boom.

'In a normal year, the growth of the corporate bond market would be closely controlled through the vetting mechanism,' said Li Hui, an analyst from West South Securities. 'The explosion this year was apparently a result of authorities loosening the reins to help boost the stimulus projects.'

So far, the central government, which was to bankroll one-third of the 4 trillion yuan stimulus scheme over two years, has lived up to its promise.

However, local governments and corporate investors are struggling to fully come up with their own share owing to financial stress caused by the downturn.

As a result, the government has encouraged companies and local governments to tap into the bond market.

However, such a free-for-all has brought risks as well as benefits for the stimulus measures.

Media reports earlier this month about alleged balance-sheet falsifications by a state-owned infrastructure company issuer based in Yueyang, Hunan, has raised concerns about the credibility of the market.

Meanwhile, Su Ning, a deputy governor of the central bank, last week called on the country's credit rating industry to improve its service to bond investors and warned the rating agencies to ensure the integrity of their work.

Yet the risks might not be enough to dampen enthusiasm among investors. The interbank market, where most of the corporate debt is traded, was awash in cash, thanks to the loose monetary policy, analysts said.

'I think the corporate bond boom has yet to run its course,' said He Xiulian, an analyst with Guangfa Securities.