Finally, Trust Firms Can Underwrite Bonds in Interbank Market

Licenses will soon be issued to trust companies in China to underwrite nonfinancial corporate bonds sold in the interbank market.

The law has allowed trust companies to underwrite such bonds since 2007, but the credit derivative industry’s self-regulating agency had not set up a system for granting the licenses until now.

The agency, the National Association of Financial Market Institutional Investors (NAFMII), will grant licenses to the trust companies that pass an assessment on their underwriting capability, it said in a statement dated Sept. 7.

The NAFMII said 54 member trust companies will be under review. China has a total of 68 trusts companies.

Currently in the interbank market, trusts companies are allowed only to distribute bonds and to trade asset-backed notes.

A source close to the NAFMII told Caixin that the approval will be based on various factors, including a trust’s funding sources, as well as a clean track record of not being involved in illegal practices, and neither fined nor investigated by departments over their misdeeds in the past three years. The source didn’t say when the result of the review will be released.

Market watchers said the metrics used in the review likely favor large-scale trusts, as a given trust’s asset base, staffing and past market performance are a major part of the assessment. The approval won’t bring drastic change in the interbank bond underwriting industry, they said, as banks and brokerages have long been dominant.

Yuan Jiwei, an analyst at Huarong International Trust Co., expects about 10 trust companies to be given the licenses after the first round of assessment.

The underwriting business for nonfinancial corporations has been flat at 5 trillion yuan ($765 billion) a year in recent years. Top 10 underwriters are all state-owned banks, accounted for more than 70% of sector’s market share, according to Yuan.

Contact reporter Leng Cheng (chengleng@caixin.com)