China’s top planning agency streamlines issuance of certain corporate bonds

National Development and Reform Commission simplifies approval procedures for high credit rating issuers

PUBLISHED : Wednesday, 02 December, 2015, 12:41pm
UPDATED : Wednesday, 02 December, 2015, 8:53pm

China’s top economic planner has taken a substantial step towards letting market forces play a role in corporate bond issuance, publishing a new guideline governing the approval procedure for companies’ debt sales.

The National Development and Reform Commission (NDRC) said on its website on Wednesday that issuers of bonds rated AA+ or higher can skip a second review process.

It also removed the quotas for AA issuers such as town-level governments and companies.

The new rule is aimed at facilitating local governments and companies’ fundraising activities amid a slowing economy and the leadership’s efforts to deepen a market-based reform in the finance sector.

“It is a move to make the bond issuance a market-driven system with the NDRC relinquishing part of its power in reviewing the applications,” said Gu Weiyong, Gu Weiyong, chief executive of Shanghai-based Ucon Investments. “The old rule did appear to be outdated and rigid.”

On the mainland, the NDRC, the central bank and the securities regulator have the power to review and approve bond sales on the interbank market and the stock exchanges.

The NDRC governs the issuance of non-financial corporate bonds known as “enterprise” bonds, which are issued by institutions affiliated to central government departments, local government-related institutions, state controlled enterprises, and other large-sized state-owned entities.

The debt approval by the economic planner is regarded as the most stringent procedure while the other two are more market-oriented.

The planning agency won’t grant approvals unless the applicants have manufacturing projects on their hands that are in compliance with the country’s industrial development guidelines.

The NDRC also said that its ultimate goal was to transform the bond issuance into a registration-based system from an approval-based one.

The efforts to streamline debt sales approval procedure came after several failures in bond repayments on the mainland recently as dwindling business orders, higher labour costs and weak external demand took a toll on mainland businesses.

China’s bond market as of October tallied 44.8 trillion yuan, according to the People’s Bank of China, ranking as the third largest in the world, trailing only the United States and Japan.

The financial authorities have been striving to create a large bond market to better quench domestic companies’ growing financing demands.

The current Chinese cabinet led by Premier Li Keqiang has been conducting a series of market-based reforms in the financial industry since taking office in early 2013, forcing the authorities to cut red-tape while giving market forces a bigger say in pricing and dealmaking.

The NDRC said in the new rule that proceeds from bond sales would be barred from investing in stocks, and encourages the development of repurchase financing and default insurance products such as credit default swaps.

In the past two years, China’s bond market was hounded by a series of scandals.

Last year, Zhang Dongsheng, a former director in charge of bond issues with the top planning agency was under investigation for corruption charges.