Bloomberg News

China Railway Ministry Sells Debt at Lower Yield on Tax Cut

October 12, 2011

(Updates with analyst’s comment in third paragraph.)

Oct. 12 (Bloomberg) -- China’s Ministry of Railways sold seven-year bonds at a lower coupon than its last auction of five-year debt, as a tax cut on interest income lured investors back after a high-speed train accident hurt confidence.

The rail operator, the nation’s biggest issuer of corporate debt, sold 10 billion yuan ($1.6 billion) of seven-year notes at 5.59 percent today, 34 basis points lower than the rate on the five-year debt sold on Sept. 7. The ministry also sold another 10 billion yuan of 20-year bonds at 6 percent, according to a statement on the Chinese bond clearing house website. The Ministry of Finance said Oct. 11 companies investing in railway bonds issued between 2011 and 2013 will have the levies on their interest earnings halved.

“The ministry has undertaken a lot of measures to regain investors’ confidence, including the tax cuts,” said Shi Lei, head of fixed-income research in Beijing at Ping An Securities Co., a unit of the nation’s second-biggest insurance company. “Liquidity has eased and the bond market has become more vibrant. That increased demand for the bonds as well.”

Ten-year borrowing costs for the rail operator, the nation’s biggest issuer of corporate debt, have jumped 51 basis points, or 0.51 percentage point, to 6.1386 percent since two high-speed trains collided on July 23 in the eastern city of Wenzhou, killing 40 people. The ministry removed three top regional railway officials from their posts and suspended approvals on new projects nationwide, while 54 similar trains were recalled.

The seven-day repurchase rate, a gauge of funding availability in the financial system, has fallen 570 basis points from its 2011 high of 9.04 percent. It fell 86 basis points today to 3.34 percent at 12:05 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

--With assistance from Jiang Jianguo in Shanghai. Editors: Sandy Hendry, James Regan

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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