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FINANCE

Chinese Companies Backpedal on 140 Billion Yuan Bond Issuance

By Guo Nan and Dong Tongjian

(Beijing) — Chinese companies delayed or canceled plans to issue nearly 140 billion yuan ($20.3 billion) worth of bonds and other short- and midterm debt instruments in April amid tightening liquidity and rising debt-financing costs in the country’s interbank market.

The amount of money that Chinese companies put off or gave up borrowing from bond investors last month exceeded the total value forgone in the first quarter in 2017, which was approximately 120 billion yuan, according to data compiled by Chinese financial information provider Wind.

China Vanke Co. Ltd. said in a recent statement made public on the website of the National Interbank Funding Center that the real estate giant dropped its original plans to issue a 1.5-billion-yuan medium-term note on April 26, citing “recent market changes.” Yunnan Tin Co. Ltd., one of the world’s largest tin producers, also said in a statement that due to “market volatility,” the company canceled its plan to issue an 800-million-yuan medium-term note.

China’s benchmark three-year and five-year government bond yields have risen steeply since December, with the yield-to-maturity on the three-year treasury in the interbank bond market surging to 3.35% on Wednesday from 2.79% on Dec. 31, and the five-year government bond yield-to-maturity climbing to 3.41% from 2.85% in the same period, according to Wind.

Meanwhile, Chinese firms raised 1.52 trillion yuan from selling corporate bonds and other types of fixed-income instruments in the first four months of this year, down by 54.2% from 3.32 trillion yuan in the same period in 2016, Wind data show. As a result, companies suffered an 86.8-billion-yuan net cash outflow of debt financing activities in the first four months this year, and the net cash inflow of financing was 1.7 trillion yuan in the same period last year.

At a time when China’s banking regulators are intensifying efforts to crack down on banks’ so-called “entrusted investment” and banks are pulling back money lent to external asset managers, Lü Pin, a fixed-income analyst with Citic Securities Co. Ltd. said that money flowing back to the balance-sheet of banks would drive down the demand for bonds, which has naturally dampened issuance of such debt instruments.

“The current pressure on the offer of bonds mainly stems from a tightened liquidity and higher cost of financing,” said Zhongtai Securities Co. Ltd. in a research note, and most of the funds raised was used to pay back loans and some interest-bearing debts.

About 772.2 billion yuan worth of corporate bonds and some other types fixed-income instruments are expected to come due in May, according to data provided by Chengxin International Credit Rating Co. Ltd. The Chinese credit rating agency said a rising market rate coupled with tightened regulatory grip would add pressure on the ability of companies to meet their debt payment obligations, and thus may increase their exposure to credit risks.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)

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