PBOC to Create Equity Finance Tool, Expand Bond Financing Tool

(Bloomberg) -- The People’s Bank of China will expand the bond financing tool it announced last month and is pushing financial institutions to set up a similar tool for equities, the bank’s governor told a government-affiliated newspaper.

• The central bank is studying the possibility of offering initial capital to the equity tool, which would support private firms with funding difficulties, Governor Yi Gang said in an interview with the Economic Daily.
• The tool would actually be set up by qualified financial institutions, such as private funds, securities companies and the investment divisions of commercial banks.
• There were no amounts mentioned in the interview, or details on how equity financing would work
• The central bank and the securities regulator are drafting a plan to support bonds of private companies
• Aggregate liquidity is "adequate," but the problem remains in how to guide the funds to private firms and the sector most in need

Key Insights

• The initiative appears aimed at widening recent measures to help private companies who have suffered the worst of a campaign to cut over-leverage in the economy
• The PBOC last month announced it was providing 10 billion yuan ($1.5 billion) as startup capital to the bond tool, which aims to to assist private companies issues bonds
• The Politburo said last month that more stimulus to support the economy would be rolled out
• The PBOC has repeatedly talked about the problem of ensuring that monetary stimulus gets to the sectors and companies that need it most. Yi’s mention of guiding funds to them indicates that the bank is still struggling with this "transmission" issue

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

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