Markets

Bonds beat stocks in early year trade

By Henry Sanderson (China Daily/Agencies)
Updated: 2011-01-25 09:25

BEIJING - Chinese companies have raised over three times more from bonds than from equities so far this year.

The figures indicate a record start for the debt market as government efforts to restrain inflation curbed access to loans and the stock market.

Corporate bond sales have totaled 100 billion yuan ($15.2 billion) since Jan 1, up 60 percent from a year earlier and the most since Bloomberg started tracking the data in 1999. Domestic currency share sales in 2011 total 28.8 billion yuan, down from 34 billion yuan a year earlier, data compiled by Bloomberg show.

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"Regulators have strengthened their control over the amount of loans," said Chen Jianbo, a Beijing-based fixed-income analyst at BOC International, a unit of Bank of China Ltd. "This has put an obstacle in the way of companies getting loans. On the other hand the regulators are encouraging direct financing, especially debt financing."

Slumping equity prices and restrictions on loan growth mean that bonds have become the only way for many companies to raise funds. The Shanghai Composite Index has slumped around 13 percent in the past year, the worst performer among benchmark measures in the 10 biggest equity markets tracked by Bloomberg. Fixed-income fund managers avoided losses as yuan corporate bonds returned 3.1 percent in the same period, according to the Bank of America Merrill Lynch China Corporate Index.

Debt sales have been led this year by companies such as China National Petroleum Corp, the country's biggest oil and gas producer, which has issued 30 billion yuan of notes through four sales, and Beijing-based Huaneng Power International Inc, a unit of China's biggest electricity producer, which has completed one sale of 5 billion yuan, according to data compiled by Bloomberg.

Chinese firms may be selling bonds on expectations that interest rate rises in the coming months will boost their borrowing costs, according to Wu Tianshu, a Beijing-based fixed-income analyst at China Galaxy Securities Co. "As long as the economy keeps growing there will be more demand for debt financing," he said.

Yields on 10-year AAA corporate bonds have climbed 1.05 percentage points from last year's low on Aug 20 to 5.19 percent, according to data compiled by Bloomberg. Similar-maturity government yields climbed 72 basis points in that period to 4 percent, a spread of 119 basis points, the data show.

The yield on the 2.68 percent government bond due in November 2013 rose one basis point, or 0.01 percentage point, to 3.35 percent on Jan 21, China bond prices show. The yield on India's three-year bonds was 8.31 percent, while similar-maturity bonds yielded 7.03 percent in Russia and 12.99 percent in Brazil.

China's benchmark money-market rate surged to the highest since October 2007 as lenders ran short of cash after the central bank's four increases in their reserve requirements in the past three months.

The seven-day repurchase rate, which measures money availability between banks, climbed 127 basis points to 7.3 percent, according to the daily fixing rate of the National Interbank Funding Center in Shanghai on Jan 21, after reaching 8.8 percent earlier that day. China reported on Jan 20 that its economy grew at a faster-than-expected 9.8 percent in the fourth quarter from a year earlier, and inflation averaged 3.3 percent in 2010, breaching the government's target.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, jumped 37 basis points last week to 3.64 percent.