Wenzhou may get bonds go-ahead

PUBLISHED : Tuesday, 17 April, 2012, 12:00am
UPDATED : Tuesday, 17 April, 2012, 12:00am


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Beijing will probably allow companies in Wenzhou to pioneer the sale of high-yield bonds as the mainland speeds up preparations for the launch of the junk debt market.

The move is in line with the efforts to bolster small and medium-sized businesses in the city in the eastern province of Zhejiang following a crisis involving the underground banking system last year.

People with knowledge of the matter said the securities regulator and the stock exchanges in Shanghai and Shenzhen were expected to select the first group of small companies that would be allowed to issue high-yield bonds soon.

The China Securities Regulatory Commission said in a media briefing recently that the framework for the groundbreaking junk debt market had been created after months of preparations.

Allowing firms in Wenzhou - known as the mainland's capital for private businesses - to sell high-yield bond also coincides with Beijing's attempts to reform the city's ailing finance sector.

Late last month, the State Council announced it would legalise Wenzhou's underground banks by granting it the status of a 'special financial zone'.

The Wenzhou city government is still drafting detailed policies to implement the central government's guideline, while Zhejiang officials and entrepreneurs are actively lobbying Beijing to widen small companies' access to much-needed capital.

The proposal to set up the mainland's high-yield bond on a trial basis is subject to the State Council's final approval.

Beijing has been cautious in launching the high-yield bond market because of concerns about lower-grade companies' solvency.

The bond issuers could offer interest of up to four times bank benchmark lending rates to raise money from investors with an appetite for high risk, the CSRC said at a briefing.

Gu Weiyong, the chief investment officer with Shanghai Ucon Investment Management, said: 'It is difficult to gauge potential market reaction to these bonds. It doesn't seem that institutional investors are interested in buying.'

The regulator took a drastic step forward in introducing the high-yield bond market after Guo Shuqing, the former chairman of China Construction Bank, took the helm of the CSRC in October last year.

Reform-minded Guo is determined to liberalise the bond market, hoping the stock exchanges will support the country's cash-hungry private businesses.

Analysts said a large portion of privately owned businesses were not strong enough in terms of fundamentals to pay back investors.

'I am not optimistic about the pending market because it will be difficult to sell the high-yield bonds,' said Gang Meng, a rating director at Dagong Global Credit Rating.

Sources said the CSRC had expected to launch the market after the National People's Congress session that ended last month.