Stocks News
- Stock regulator to get corporate bond role
Date: 14-Jun-2007 Sources: (Shenzhen Daily)
THE stock regulator will take on a new role in approving corporate bond issuance by listed firms, kicking off a long-awaited reform that will make it easier for cash-starved companies to issue bonds.
The China Securities Regulatory Commission (CSRC) published draft rules in domestic financial newspapers yesterday to solicit opinions on the reform.
Under the new rules, the CSRC will be able to approve the issuance of bonds with durations above one year by companies listed overseas, including in Hong Kong, as well as those listed on the mainland's Shanghai and Shenzhen stock exchanges.
The National Development and Reform Commission (NDRC), the top government planner, is currently the only body that can approve corporate bonds with durations above one year, and severe restrictions, including a requirement of bank guarantees, make it difficult for companies to issue bonds.
The Shanghai Securities News said companies with net assets of 1 billion to 1.5 billion yuan (US$130-US$196 million) or more would be able to issue bonds without bank guarantees under the new rules.
'The CSRC will take on the role of checking and approving applications for issuance of corporate bonds of more than one year,'the regulator said in the draft regulations.
'Companies can submit an application for an overall bond issue plan but can float the bonds in batches after approval, with the first batch being no less than half of the total in the plan,'it said. The remainder must be sold within 24 months.
The draft rules also set other requirements, including that the total value of a company's outstanding bonds not exceed 40 percent of its net assets at the end of the latest earnings reporting season.
The regulator did not give a timetable for implementation, but it typically takes less than one month in China for draft rules to be promulgated after a request for public comment.
Analysts and industry officials, including those from the central bank, have long argued that China needs a mature corporate bond market to supplement the newly reviving stock market and to help firms cut their reliance on bank loans.
Issuance of bonds with maturities above one year must now be approved by the NDRC, while the CSRC approves issues of listed firms' convertible bonds and the central bank is in charge of short-term corporate bills of one year or less.
The revisions to existing practices, which the NDRC has been considering since 2001, are now set to pass most authority for approving longer-term corporate bonds to the CSRC, which has been praised for its speedy review and approval of stock offerings.
China's bond market, at less than 5 percent of total corporate fundraising, is very small compared with other developed and emerging economies, although the pace of growth is likely to pick up when the reforms go through.
Direct fundraising through stocks and bonds accounted for only around 10 percent of total corporate fundraising last year, compared with more than 50 percent in mature markets such as the United States, Germany and Japan, official figures show.
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