Bloomberg News

China Restricts Bond Sales by Risker Companies

December 20, 2012

China’s top economic planning agency said it will restrict bond sales by companies with high levels of debt as authorities seek to limit default risks.

The National Development and Reform Commission said it won’t approve bond sales by companies with liability-to-asset ratios higher than 90 percent and that have a “relatively high” risk of not being able to repay debt, according to a statement posted on the agency’s website yesterday.

China has sought to expand its bond market to wean companies off a dependence on bank loans and to give smaller companies more fundraising options by allowing them to sell debt. That growth in China’s bond market, where no company has yet defaulted on a publicly-traded debt, has spurred concern that some issuers may have difficulty repaying borrowings.

Harbin Huijiabei Foods Co., a company that sold a collective bond with three other companies in 2010, said yesterday it won’t be able to deposit its payable principal and interest to a reserve account on time, according to a statement posted on Chinabond, the nation’s bond clearinghouse. The yield on the bond last traded at 17.7 percent, up from 9 percent in February, according to Chinabond.

The NDRC said yesterday companies that have sold bonds are forbidden from guaranteeing other companies’ debts. The agency also called for credit rating companies not to give artificially high ratings.

The NDRC, China’s central bank and the nation’s securities regulator all approve debt sales in the nation.

To contact Bloomberg News staff for this story: Henry Sanderson in Beijing at hsanderson@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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