Bonds News
- Banks told not to guarantee corporate bonds
Date: 25-Oct-2007 Sources: (Shenzhen Daily)
THE banking regulator has told domestic lenders to stop guaranteeing corporate bond issues, the China Securities Journal said yesterday.
The move is aimed at minimizing banks' credit risk. It is also a step towards nurturing a credit culture in China by requiring investors to assess the stand-alone creditworthiness of various issuers shorn of guarantees from big State-owned banks.
'This is aimed at protecting bank assets and effectively preventing risks involved in bond guarantees. Many banks are not selective when offering such services and sometimes underestimate the credit risks of bond issuers,' the paper said.
Citing industry sources, it said the China Banking Regulatory Commission issued a circular to lenders Tuesday, ordering them to halt issuing guarantees for bonds floated by either listed or non-listed firms.
The initiative follows the abolition in August by the National Development and Reform Commission (NDRC), which oversees bond issues by non-listed firms, of a rule requiring a bank guarantee.
The rule had been designed to protect bond buyers in the event of default, but it meant that investors were in effect taking on the risk of lending to a bank, not to the bond-issuing firm.
The China Securities Regulatory Commission, which this year assumed responsibility from the NDRC for supervising bond issues by listed firms, also dropped the need for a guarantee. Instead, it now requires issuers to meet certain profit targets and to obtain an investment-grade credit rating.
The China Securities Journal said the banking regulator had also asked banks, if possible, to withdraw any bond guarantees they have issued.
In another small step towards developing China's capital markets, the State Council, or Cabinet, is considering letting local governments invest their pension funds in mutual funds and other financial instruments, according to the paper.
Under current rules, the pension money must be invested in bank deposits or treasury bonds.
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