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Private firms see surge in bonds

By Li Qiaoyi (Global Times)

08:35, September 26, 2012

China's private enterprises reported a big increase in their issuance of corporate bonds during the first eight months of the year amid a boom in the country's corporate bond market, which has bucked the trend of an overall sluggish financing environment, the official China Securities Journal reported Tuesday, citing latest figures from a central bank-backed agency.

From January to August, private enterprises issued a total of 153.56 billion yuan ($24.33 billion) worth of various types of bonds via the country's interbank bond market, an increase of more than 40 percent compared with the previous year, according to data from the National Association of Financial Market Institutional Investors, the newspaper reported.

The number of private companies issuing debt financing instruments for non-financial business also went up 34 percent year-on-year to 177 by the end of August, according to the association.

"Bond issuance helps cut financing costs for enterprises, and is attractive especially for smaller private companies which have been struggling to cope with the economic downturn," Lu Zhengwei, chief economist at Industrial Bank Co in Shanghai, told the Global Times Tuesday, while noting that the strong growth seen in private enterprises' bond issuance remains overshadowed by State-owned enterprises' predominance in the corporate bond market in terms of debt issuance.

"Investors are generally more concerned over buying private enterprises' bonds, as they have less access to credit information about privately owned firms," Lu remarked, urging the establishment of a modern, transparent enterprise information system for the private companies for a clearer picture in the corporate bond market.

The country's small- and medium-sized enterprises (SMEs), the very source of the economy's vitality, are increasingly open to direct financing. However, the country's immature direct financing environment compared to developed economies still presents barriers to SMEs' access to the bond market, said Zhou Dewen, president of the Wenzhou Council for the Promotion of Small and Medium-sized Enterprises.

In addition to the interbank bond market, the Shanghai Stock Exchange began a trial program in June allowing the issuance of high-yield "junk bonds" by Chinese SMEs on a fixed-income trading platform, introducing a new category of bonds to offer aid to cash-thirsty private enterprises.

The "junk bonds" are widely used in developed economies such as the US and Europe for corporate financing.

"But as far as I know, some enterprises' eagerness for the new type of bonds has cooled down due to the exchange's demand for certain amount of collateral or equity capital," Zhou told the Global Times Tuesday.

The government should further lift the bar on direct financing accessible by smaller private enterprises, which have long been reliant on bank loans, Zhou suggested.

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