Recent Chinese corporate bond drought set to end: Fitch

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Chinese corporate bond issuance is expected to rebound from a three-month decline on large financing needs and infrastructure spending plans according to Fitch.

Rising yields and new restrictions designed to contain risks surrounding excess leverage saw the onshore issuance of renminbi bonds between December and February fall to an average of Rmb750bn a month ($108.6m), down 41 per cent compared to the same period in 2015, Fitch said.

The fall was most stark among non-financial companies with issuance down by two thirds during December to February compared to the same period in 2015, the ratings agency found. December to February are traditionally quieter months for bond issuances with Fitch expecting the pace to pick up over the year.

Fitch said the recent growth in borrowing from the international bond market by Chinese companies, was not a “major driver” for the fall in bond sales at home.

Chinese companies raised $26.1bn from offshore bond sales against $21bn at home in the first two months of the year, according to Dealogic.

Fitch found international bond sales by Chinese corporates rose 24 per cent year on year to an average of $27bn a month between December and February. International bond sales totalled $316bn in 2016, compared to $3.3tn for local bond sales.

Fitch said:

Its [offshore] share of overall issuance jumped in recent months, but that was primarily a function of the collapse in onshore issuance. Chinese issuers are not simply shifting their issuance offshore; they have dramatically reduced it.

Some companies in China turned to banks for borrowing over the bond market, Fitch said, as the average yield-to-maturity of domestically AAA rated bonds increased by 94 basis points between December and February while bank lending rates did not see such an increase.

Tighter rules on issuing exchange-traded-bonds for property developers and for companies in the coal and steel industry also dragged on the number of issuances.

A total of 168 new transactions worth Rmb171bn were cancelled or delayed between November and February, with almost all of these made by high domestically rated state-owned businesses. The cancellations or postponements were voluntary.

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