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Economy

Economic Watch: China further eases corporate financing with registration-based bond issuance rules

March 03, 2020


Abstract : By replacing the approval-based corporate and enterprise bond issuance system with a registration-based one, China has made new strides in easing the financing strain on cash-starved firms.

BEIJING, March 2 (Xinhua) -- By replacing the approval-based corporate and enterprise bond issuance system with a registration-based one, China has made new strides in easing the financing strain on cash-starved firms.

The top economic planner and securities watchdog announced on Sunday that China would begin to implement a registration-based system for the public issuance of enterprise and corporate bonds starting from March 1.

The National Development and Reform Commission (NDRC) shall register the issuance of enterprise bonds in accordance with the law, clarifying that the firms' average distributable profits over the last three years must be sufficient to pay one year of interest.

Issuers of the enterprise bonds should have a reasonable asset-debt structure and normal cash liquidity, with the raised funds encouraged to invest in projects that conform to the nation's macro-control policies and industrial policies, the NDRC said.

Under the registration-based system, the issuance period of enterprise bonds is expected to be largely reduced to two weeks, down from 2-6 months under the approval-based system, according to financial information provider Wind.

Issuance procedures were also further streamlined, which would help stimulate the enthusiasm of bond issuers, Wind said quoting industry insiders.

Meanwhile, the requirements for information disclosure and responsibilities of intermediaries including underwriting institutions, credit rating agencies and accounting firms, were strengthened under the new rule.

For the issuance of corporate bonds, the China Securities Regulatory Commission (CSRC) said in a separate circular that the Shanghai and Shenzhen stock exchanges shall process and examine the public listings, and report them to the commission for registration procedures.

Asking the two exchanges to clarify the verification standards and procedures, listing requirements, means of trading and other related matters, the CSRC said it will intensify the supervision of corporate bond issuers, strengthen the responsibilities of intermediary agencies, and protect the legitimate rights and interests of investors.

The new rule on the issuance of corporate bonds waives the requirement for the issuer's minimum net assets and stipulation that its accumulated bond balance shall not exceed 40 percent of its net assets.

The rule also adjusted the conditions for applying for the listing of corporate bonds, removing the restriction that the term of corporate bonds should be more than one year.

With the implementation of the new rules, experts expect the firms' financing costs to be further lowered and the bond issuance scale to be enlarged, strengthening the bond market's provision of direct financing.

They will have a positive effect on the operation of China's bond market, and are conducive to improving the financing environment, preventing financial risks and promoting the high-quality development of the financial market, said Ming Ming, an analyst with CITIC Securities.

In addition, the new rules will greatly mitigate the current financing difficulties of enterprises amid the epidemic and boost financing support for the real economy, Ming said.

China's revised Securities Law went into effect on the same day, a milestone in the country's capital market reform. The new law outlines regulation details in securities issuance and trading, the takeover of listed companies, information disclosure and investor protection, among others.

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Keyword: China bond financing

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