State Planner Orders Assessment of Enterprise Bond Risk
China’s top economic planner has asked its provincial-level branches to assess the default risk of outstanding bonds issued by nonlisted firms and state-backed enterprises.
In a document published Friday by the National Development and Reform Commission (NDRC), provincial-level agencies were tasked with taking inventory of outstanding enterprise bonds issued in their jurisdiction. They are to review issuers’ repayment abilities, use of proceeds, as well as information disclosure.
The move comes as the China Securities Regulatory Commission (CSRC) identified use of funds and information disclosure as major areas of noncompliance after onsite inspections of 263 corporate bond issuers. In a report also released Friday, the CSRC found that some funds were not used for their specified purposes, lent to others or invested in wealth management products. The securities regulator also found issuers inaccurately disclosed information on how funds were used and failed to report major events in a timely manner.
In China, three regulators oversee bonds. The central bank supervises bonds traded in the interbank market, the NDRC oversees enterprise bonds issued by nonlisted firms and state-owned enterprises, and the CSRC oversees corporate bonds issued by listed companies.
“In 2018, overall repayment pressure on enterprise bonds will remain high, and the bond market’s credit risk situation is serious,” read the NDRC document. Defaults have had a large impact on the local financial environment of some areas, the document continued.
Thus the national agency has asked its branches to take the lead to examine enterprise bond repayment risk for this year. For issuers that have encountered major operational difficulties that may affect bond repayment, the NDRC requires the issuers and lead underwriters to come up a plan to address risk and report to the provincial authority immediately.
As of last Friday, there were a total of 5,452 outstanding enterprise bonds worth 8.15 trillion yuan ($1.25 trillion). In 2018, 422 of these bonds with principal payments worth 628.8 billion yuan will become due, according to data provider Hithink RoyalFlush Information Network.
Local economic planning agencies are to submit reports that will include details on outstanding enterprise bonds and projects funded by debt financing before Jan. 20.
The report is to include details of the number and value of enterprise bonds, information on the industry and projects the funds are used for, as well as outstanding principal and interest, according to the NDRC document. Local agencies were asked to report on whether projects funded by debt financing started on schedule and whether the pace of development is as stated in fundraising documents.
A separate report on default risk evaluation is to be submitted before Jan. 31. The NDRC also said it would convene a conference on inspecting enterprise bond default risk in the first quarter of the year, without specifying the exact date.
The Friday document highlighted focus areas for risk prevention including bonds for small- and medium-sized enterprises (SMEs), and cases where the issuer changes the proposed use of funds.
In an effort to support financing for SMEs, the NDRC has allowed local government financing vehicles to issue bonds that are then made available to SMEs through commercial banks in 2013. According to statistics gathered by Caixin, as of Dec. 29, a total of 114 such bonds valued at 80 billion yuan are still outstanding, and have an average coupon rate of 5.4654%.
There were a total of 49 bond defaults in 2017, totalling 900 million yuan. Twelve of these were enterprise bonds, according to data compiled by Caixin.
Contact reporter Liu Xiao (firstname.lastname@example.org)
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