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Corporate Bond Quotas May be Scrapped
2006-04-24 10:00:19      Xinhua
China may scrap a system of quotas this year for companies issuing corporate bonds.

Corporate bond issues must currently be approved by the National Development and Reform Commission (NDRC), the country's top economic planner, which sets the quotas each year. The central bank sets limits on the coupons of the debt.

A cumbersome approval process has capped the sale of corporate bonds of one year and longer in duration.

Only a limited number of major institutions, such as China International Trust and Investment Corp. and the country's Ministry of Railways, have managed to issue bonds.

Since 1992, the NDRC has authorized less than 400 billion yuan (US$50 billion) in new corporate debt, about one-third of the capital raised by domestic share sales.

The State Council now plans to completely revise a set of rules promulgated in 1993. The new regulations are expected this year.

"Pricing of corporate bonds and their interest will be more market-oriented," the China Securities Journal said. "The threshold for companies to issue corporate bonds will also be lowered."

The central bank, the People's Bank of China, now caps coupons of the bonds at no more than 40 percent higher than the interest rates of fixed bank deposits of the same duration.

New regulations would also add provisions to help curb the risks of investing in corporate debt, such as introducing a system that will annul issues in which companies fail to sell 70 percent of their planned issuance amount, the newspaper said.

(Source: Shenzhen Daily/Agencies via Xinhua Net/Photo:Baidu)

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