Fitch: China's Changes Ease Access to Interbank Bond Market for Corporate

Fitch Ratings says the recent regulatory moves in China's interbank bond market signal that the Chinese government is committed to enhancing corporates' access to debt capital market financing, in a bid to reduce their reliance on bank financing, spur economic growth, and further expand and diversify the onshore corporate bond market.

The People's Bank of China (PBOC) said it would simplify the administrative procedure for newly issued bonds to trade in the interbank market on 26 May 2015. The PBOC's approval is no longer required for certain bonds, including but not limited to central government bonds, financial bonds, enterprise bonds, and asset-backed securities, to trade on the interbank market after primary issuance and registration of the debtor-creditor relationship. The lead time for processing the trading applications will also be cut from 20 business days to only one.

The National Development and Reform Commission (NDRC), in a separate move, reduced the barriers to entry for interbank enterprise bond issuers on 27 May 2015, including looser requirements for gearing ratios and elimination of the limit on the number of issuers seeking financing to fund projects in certain favoured industries, such as oil and gas transmission, health care services, and clean energy. Additionally, enterprises are allowed to fund up to 70% of a project by bonds, compared with the previous 60% limit.

Fitch believes the changes underscores the Chinese government's continued efforts to accelerate the expansion of the onshore debt capital market, particularly the corporate bond market, which has expanded at a 53% 10-year CAGR to CNY12.2trn as of 30 April 2015. A maturing corporate bond market provides corporates, especially non-state-owned corporates, which traditionally have less access to bank financing, with alternative means of fund-raising, and could help the government to ease downward pressure on the economy.

The new interbank market rules follow the China Securities Regulatory Commission's (CSRC) recent loosening of regulations for exchange-traded corporate bonds, which expanded the pool of exchange corporate bond issuers to all corporates in January 2015, in a bid to promote the exchange bond market under its purview.

The issuance of interbank enterprise bonds, however, is still subject to the NDRC's approval, while the issuance of short-term commercial paper, commercial paper and medium term notes is come under the shelf registration mechanism. Fitch expects a registration-based mechanism to become the norm for primary issuance in both the interbank and exchange markets over the medium to long term, although the government's "invisible hand" is unlikely to fully disappear.