China’s main stock exchange has started a trial programme to allow companies to issue short-term local bonds, in the latest move by authorities to ease funding pressure for businesses hit by a dramatically weakening economy.
Companies that meet certain requirements on cash flows and liquidity can apply for issuing bonds with a maturity of no longer than a year, according to a notice issued yesterday by the Shanghai Stock Exchange.
The bourse said the trial is aimed at further expanding corporate fundraising channels, lowering funding costs and fulfilling liquidity management needs.
Battling the worst recession in decades, Beijing has in recent months taken a suite of steps to revive its economy, ranging from cutting key market interest rates to cash injections and increased infrastructure spending.
In a bid to keep more distressed firms afloat, regulators also have encouraged investors to accept debt reprieves such as delayed bond repayment and debt swaps.
“The new measure is in line with the general policy against the backdrop of the virus outbreak, and there is stronger demand as investors won’t worry too much about liquidity risk,” said Li Yuze, analyst from China Merchants Securities Co, referring to the short maturity of such bonds.
But he added that there are concerns that as more short-term debt is issued, it may bring about heavier refinancing pressure in the future.
In China’s dominant interbank bond market, which is overseen by the country’s central bank, the outstanding value of bonds with a maturity of no longer than one year now stands at 2.6tn yuan ($370bn), or 11.5% of the total, according to data compiled by Bloomberg.
The Shanghai bourse said qualified issuers of such bonds can only use the proceeds to repay debt that will mature in less than a year and replenish working capital.
It added that the bonds are for sale to professional investors during the trial.
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