Kyrgyzstan wants to join Turkmen-China gas pipeline

China's securities regulator gave long-awaited approval on Tuesday for listed firms to issue corporate bonds on a trial basis, a milestone for the country's budding bond market.

The China Securities Regulatory Commission (CSRC) said in a series of statements published on its Web site (www.csrc.gov) that companies listed in Shanghai, Shenzhen or overseas could apply to sell corporate bonds with maturity of more than one year.

The CSRC said the move would offer more choice to Chinese investors amid growing demand for fixed-income products.

"Institutional investors such as mutual funds, insurers, commercial banks and social pension funds have an urgent need for corporate bonds," it said.

Issuers do not need bank guarantees and can use funds raised for any general corporate purpose that is approved by their board, including repaying bank loans or improving financial structure, it said.

Under the old rule, the National Development and Reform Commission, the top government planning body, was the only body that could approve such bond issues with maturity above one year.

But tough restrictions, including a requirement for bank guarantees, made it difficult for companies to issue bonds. And companies can only use the funds for designated fixed-asset investment projects.

The People's Bank of China, the central bank, took advantage of the system by opening a corporate bill market in May 2005 for debt of one year or less.

After the new rule takes effect, the government planning body will still be in charge of approving issuance of bonds of more than one year by non-listed firms.

The planning commission gave its approval in March for 95 firms to issue a record 99.2 billion yuan ($13 billion) in bonds in 2007, up from 60.8 billion yuan in 2006.

But these figures were still dwarfed by the 165 billion yuan raised through domestic initial public equity offerings and paled in comparison with the 3.18 trillion yuan in new Chinese bank loans in 2006, almost all of which went to corporations.
FLEXIBLE RULES

The CSRC said potential issuers must have sound credit ratings and their average annual distributable profits in the recent three accounting years should be at least equal to one year's interest that the company would have to pay on the proposed bond issue.

Companies can submit an application for an overall bond issue plan but can float them 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 total value of a company's outstanding bonds should not exceed 40 percent of its net assets at the end of the latest earnings reporting season, it added.

Selling bonds is much cheaper than bank loans, the regulator said, adding that it would also reduce administrative fees and charges for bond issues.

Chinese firms have been relying on bank loans for funds, leaving a concentration of potential risks in the banking sector.

Earlier this year, the Chinese government, keen to transfer part of that risks from banks, made the boosting of the size of corporate bond market a key priority for 2007.

China's bond market, at less than 5 percent of total corporate fund raising, 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.