Bond sales surge on signs of policy easing

(Agencies) Updated: 2014-10-23 07:30

Chinese companies sold a record amount of bonds this year as the central bank eased monetary policy to help ensure economic growth meets its target.

Bond issuance have totaled 4.29 trillion yuan ($701 billion) to date this year, more than the 3.77 trillion yuan for all of 2013 and the most since Bloomberg started compiling data in 1999.

The yield on five-year AAA rated corporate notes has declined 146 basis points this year to 4.83 percent, the lowest since July 2013, after the People's Bank of China cut repurchase rates to help reduce borrowing costs.

"The declining yields are reviving Chinese companies' bond sale plans," said Xu Hanfei, a bond analyst in Shanghai at Guotai Junan Securities Co Ltd, the nation's third-biggest brokerage. "The amount may increase further next year as property developers have resumed bond sales on the interbank market."

The sales surge comes as Premier Li Keqiang shifts his focus to stabilizing the economy after earlier efforts to rein in borrowings precipitated China's first onshore bond default and greater concern more companies may fail to pay obligations.

The central bank, which has lowered the 14-day repurchase rate twice since August, is planning to provide about 200 billion yuan to some national and regional lenders, a government official familiar with the matter said on Friday.

Companies in China have sold 1.8 trillion yuan of bonds so far in the second half, 58 percent more than the same period last year, according to data compiled by Bloomberg. Issuance slipped 10 percent in 2013 from 2012 as corporates pulled sales because of high borrowing costs. Guotai Junan's Xu said bond yields may decline further this quarter ahead of a possible rate cut by the central bank before the end of 2014.

China's gross domestic product rose a better-than-expected 7.3 percent in the July-September period from a year earlier, the statistics bureau said on Tuesday in Beijing, as export demand quickened and services expanded, a positive sign the government's stimulus measures are working.

Finance Minister Lou Jiwei said in March that growth as low as 7.2 percent would meet this year's target of about 7.5 percent. Third-quarter expansion was still the slowest since the first quarter of 2009.

Shanghai Chaori Solar Energy Science & Technology Co Ltd, a Shanghai-based solar panel maker, marked China's first onshore corporate bond default when it missed a coupon payment in March. Closely held developer Zhejiang Xingrun Real Estate Co Ltd, in the eastern province of Zhejiang, collapsed the same month under 3.5 billion yuan of debt.

Liu Dongliang, a bond analyst at China Merchants Bank Co Ltd in Shanghai said the government is softening its deleveraging approach. "If it carries on with last year's approach, more companies would be unable to repay their debts, which may trigger a surge in credit risk."

Pressure to refinance debt is forcing local-government financing vehicles to issue record amounts of bonds. LGFVs sold 1.3 trillion yuan of notes since Dec 31, the most in the same period since at least 1999, according to data by Bloomberg .

The yield on the benchmark five-year sovereign note has declined 91 basis points since Dec 31 to 3.55 percent as the cooling economy added to demand for haven assets. Five-year top-rated bond yields touched a record high 6.31 percent in January.

China may allow listed property developers to sell bonds on its interbank market for building homes, providing a new source of financing to a sector facing decreasing prices and surging debt, people familiar with the matter said on Sept 4.

Since early September, nine real estate companies have announced plans to sell bonds totaling 49.7 billion yuan in the onshore market. China Vanke Co Ltd, the nation's biggest domestic developer, said on Sept 22 it will issue 15 billion yuan of medium-term debentures.