China throws bond lifeline to B-share companies
HONG KONG, May 14 (IFR) - China has opened a new fundraising channel for purely B-share companies, which have been more or less barred from refinancing since 2004.
Foshan Huaxin Packaging, a Chinese manufacturer of packaging materials and products, announced on May 4 that the China Securities Regulatory Commission had approved its plan to issue corporate bonds of Rmb800m (US$127m), the first deal of its kind in the B-share market.
The proposed bond issue is also the first fundraising from a company with only B-shares outstanding. The CSRC stopped granting approvals for the fundraisings in 2004, in a bid to restructure the struggling B-share market.
B-shares are domestically listed stocks denominated in either US or Hong Kong dollars. They were introduced in 1992 and were originally only available to foreign investors. The popularity of the market faded, however, when Chinese companies realised that they could access offshore accounts much more effectively through listings in Hong Kong, New York or London.
By crimping their access to funds, China's regulators had effectively pushed B-share companies into the mainstream A-share market, leaving the outstanding B-share market an illiquid relic.
There are still no written guidelines governing B-share companies' issuance of corporate bonds. However, until now, applications to the regulator for approval to issue new bonds have been declined.
FHP and its lead on the planned bonds, Guangzhou Securities, however, tested a new route to issuance through discussions with the CSRC at the beginning of the year.
The lead submitted an application in early February and received some positive response from the authorities. CSRC chairman Guo Shuqing is understood to have given the deal his blessing.
"It's encouraging. After all, B-share companies also need funds for further developments," said Cai Yu, a DCM banker at Guangzhou Securities, who is working on the transaction.
The regulator's rapid approval of the deal in three months will probably encourage more B-share companies to raise funds through bonds rather than equities.
B-share coalminer Inner Mongolia Yitai Coal applied to the CSRC in late 2009 with a proposal to sell H-shares. As this was the first purely B-share company attempting to sell shares in Hong Kong, the regulator had handled the case cautiously and it was not until last month that Yitai received CSRC approval for the US$1.5bn overseas listing.
Boost for corporate bonds
However, if FHP's move succeeds, equity would not be the only option.
"If the (FHP) deal goes through, it will definitely open a new fundraising channel for many cash-hungry B-share companies," said a DCM banker. "The brokerages will compete for the new business."
Bankers pointed out corporate bonds of B-share companies were no different from those of A-share companies. The bonds, however, are expected to be bigger in size and more liquid than private bonds from small- and medium-sized enterprises and ChiNext-listed companies. The CSRC also regulates bond issues from those two markets.
FHP's Rmb800m bonds are likely to have a tenor of five years with an investor put in year three.
The yield of the paper, which is expected to hit the market in June, will be lower than the interest rate for a bank loan of the same tenor, according to a source. The loan rate currently stands at 6.9%. Both the proposed bonds and the company had AA ratings from Lianhe, added the source.
The CSRC's decision to open a new funding channel for B-share companies is also a boost the country's corporate bond market, which is still much smaller than the MTN and enterprise bond markets.
"The authorities are really showing their determination to develop the exchange bond market," said a DCM banker. "Along with the SME and ChiNext private bond markets, a multi-layered market is emerging."
There are, currently, 108 B-share companies in China, including those also listed in A- and H-share markets.
Foshan Huaxin Packaging, a Chinese manufacturer of packaging materials and products, announced on May 4 that the China Securities Regulatory Commission had approved its plan to issue corporate bonds of Rmb800m (US$127m), the first deal of its kind in the B-share market.
The proposed bond issue is also the first fundraising from a company with only B-shares outstanding. The CSRC stopped granting approvals for the fundraisings in 2004, in a bid to restructure the struggling B-share market.
B-shares are domestically listed stocks denominated in either US or Hong Kong dollars. They were introduced in 1992 and were originally only available to foreign investors. The popularity of the market faded, however, when Chinese companies realised that they could access offshore accounts much more effectively through listings in Hong Kong, New York or London.
By crimping their access to funds, China's regulators had effectively pushed B-share companies into the mainstream A-share market, leaving the outstanding B-share market an illiquid relic.
There are still no written guidelines governing B-share companies' issuance of corporate bonds. However, until now, applications to the regulator for approval to issue new bonds have been declined.
FHP and its lead on the planned bonds, Guangzhou Securities, however, tested a new route to issuance through discussions with the CSRC at the beginning of the year.
The lead submitted an application in early February and received some positive response from the authorities. CSRC chairman Guo Shuqing is understood to have given the deal his blessing.
"It's encouraging. After all, B-share companies also need funds for further developments," said Cai Yu, a DCM banker at Guangzhou Securities, who is working on the transaction.
The regulator's rapid approval of the deal in three months will probably encourage more B-share companies to raise funds through bonds rather than equities.
B-share coalminer Inner Mongolia Yitai Coal applied to the CSRC in late 2009 with a proposal to sell H-shares. As this was the first purely B-share company attempting to sell shares in Hong Kong, the regulator had handled the case cautiously and it was not until last month that Yitai received CSRC approval for the US$1.5bn overseas listing.
Boost for corporate bonds
However, if FHP's move succeeds, equity would not be the only option.
"If the (FHP) deal goes through, it will definitely open a new fundraising channel for many cash-hungry B-share companies," said a DCM banker. "The brokerages will compete for the new business."
Bankers pointed out corporate bonds of B-share companies were no different from those of A-share companies. The bonds, however, are expected to be bigger in size and more liquid than private bonds from small- and medium-sized enterprises and ChiNext-listed companies. The CSRC also regulates bond issues from those two markets.
FHP's Rmb800m bonds are likely to have a tenor of five years with an investor put in year three.
The yield of the paper, which is expected to hit the market in June, will be lower than the interest rate for a bank loan of the same tenor, according to a source. The loan rate currently stands at 6.9%. Both the proposed bonds and the company had AA ratings from Lianhe, added the source.
The CSRC's decision to open a new funding channel for B-share companies is also a boost the country's corporate bond market, which is still much smaller than the MTN and enterprise bond markets.
"The authorities are really showing their determination to develop the exchange bond market," said a DCM banker. "Along with the SME and ChiNext private bond markets, a multi-layered market is emerging."
There are, currently, 108 B-share companies in China, including those also listed in A- and H-share markets.
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