China Said to Extend Bond Quota for 56 Firms to Ease Funding

(Bloomberg) -- China’s central economic planner has extended the validity of foreign bond issuance quotas for another 56 Chinese companies by half a year, in a bid to ease funding constraints for the nation’s corporate sector battered by a liquidity crisis.

The National Development and Reform Commission has given 56 companies until end-June to use their bond issuance quotas that would’ve expired last year, according to a document seen by Bloomberg. This follows a similar move by the regulator for 33 separate companies. The NDRC didn’t immediately reply to a fax from Bloomberg seeking comment on the issuance quotas.

Chinese corporations have been clobbered after a deleveraging campaign lifted their financing costs, resulting in a record amount of local bond failures last year. The government has been easing funding conditions for the corporate sector since July with targeted measures while also urging lenders to extend funding. The NDRC said last month that it will focus on supporting bond issuance by companies with sound credit record and major contribution to local economy or industrial upgrade.

International investors, however, have been wary of Chinese credits amid surging defaults. Dollar bond sales from China fell 20 percent last year to $167.7 billion, according to Bloomberg-compiled data.

The quota extension is “in line with our expectations as some companies were unable to print last year due to market conditions or other factors, but they still have refinancing or funding needs this year,” said Jimond Wong, a senior portfolio manager for Asia fixed income at Manulife Asset Management. “However, extending quota doesn’t mean these companies can print at their own will -- it’s still a function of market dynamics and individual credit strength."

Supply pressure

Around 130 Chinese companies sold dollar bonds from January to June last year, Bloomberg-compiled data show, which means the 89 firms that got quota extensions already represent more than two thirds of the number of issuers in that period. Meanwhile, average yield of Chinese dollar-denominated corporate high yield bonds almost doubled over 2018, according to ICE Bank of America Merrill Lynch Indexes.

"NDRC has no responsibility to screen the names for us. We have to do the homework ourselves," said Vivien Gui, a Hong Kong-based managing director of fixed income of Great Wall Pan Asia Asset Management Ltd. The market has rallied this year since opening, but investors need to decide if they want to buy lower quality names, she said.

Click here for more market views on the bond quota extension.

The 56 issuers include CAR Inc., Sunac China Holdings Ltd., Xinhu Zhongbao Co. according to the document dated Dec. 24. The investor relations department at CAR confirmed the quota extension received by the car rental firm. Sunac declined to comment and Xinhu Zhongbao didn’t immediately comment when reached by Bloomberg News. Click here to read more about companies that received an extension.

©2019 Bloomberg L.P.