Hong Kong, March 08, 2018 -- Moody's Investors Service says that tightened levels of liquidity
in China's domestic bond markets will lead more high-yield
issuers to access the offshore market, while the increased responsibilities
of bond trustees will also improve transparency and investor protection
on the onshore market.
"Specifically, increased regulatory supervision on the investments
of Chinese financial institutions in bonds and wealth management products
has tightened liquidity and shrunk bond issuance by companies in the onshore
market," says Ivan Chung, a Moody's Associate
Managing Director.
"This situation is unlikely to change significantly in the next
12 months, and we expect more onshore bond issuers will seek financing
through other channels, including the offshore market,"
says Chung.
Moody's conclusions are contained in the latest edition of its Renminbi
Bonds Monitor, which looks at key developments in the Chinese offshore
and onshore markets over the last quarter.
Moody's expectation that the government will continue to strengthen
its regulatory oversight of the sector is underpinned by its key policy
objective of preventing financial risk. As such, liquidity
will likely continue to tighten for onshore bond investments in 2018.
With their access to onshore bank loans limited and funding from shadow
banking constrained by intensified regulation, Moody's expects
high-yield issuers will increasingly tap the offshore bond market.
Moreover, despite the exchange rate risks, this offshore issuance
will be mainly in USD because of its predominant market liquidity and
capacity over other currencies.
In its newsletter, Moody's also comments on the publication
in February 2018 by both the Shanghai Stock Exchange and Shenzhen Stock
Exchange of their "Circular on Further Strengthening Credit Risk
Management Related Work for Outstanding Bonds".
The circular details the main responsibilities of trustees in terms of
credit risk management, and emphasizes their role in identifying
and reporting credit risk events.
Moody's notes the guidelines will enforce better discipline and
accountability among bond trustees, thereby improving protection
for onshore bond investors.
While there is still room for improvement regarding the level of trustee
independence, the new regulations will also enhance best practices
and disclosure.
In particular, the increased responsibilities of trustees will improve
the monitoring and disclosure of major events/developments that are detrimental
to issuers' credit quality.
Articles in the latest Renminbi Bonds Monitor include:
• Cross-Sector - China: CBRC's ongoing
focus to address systemic risks is positive for banks and corporations
• Cross-Sector - China: Debt-equity swaps
provide liquidity relief, but some liabilities remain in system
• Consumer loan ABS - China : New regulations for internet-based
lending are credit positive
• Banks: China's tighter regulation on banks' entrusted
loans is credit positive
The report may also be found through Moody's topic page "China's trade-off:
Deleveraging and stability", available at https://www.moodys.com/newsandevents/topics/china-s-trade-off-deleveraging-and-stability/-/00702A/00702A/-/-1/0/-/0/-/-/-/-/-/-/-/en/global/pdf/-/rra.
This page provides a centralized source for Moody's research related to
key credit issues in China as the country's macroeconomic story continues
to unfold.
Recent Moody's publications relating to China's trade-off include:
• Regional & Local Governments — China: Recent data
restatements cast doubt on RLGs' ability to support state-owned
enterprises
• Cross-Sector — China: CBRC's ongoing focus to
address systemic risks is positive for banks and corporations
• Cross-Sector — China: Debt-equity swaps
provide liquidity relief, but some liabilities remain in system
• Refining — China: Government's increased sector supervision
is credit positive for CNPC and Sinopec
• Consumer loan ABS — China : New regulations for internet-based
lending are credit positive
• Banks: China's tighter regulation on banks' entrusted loans
is credit positive
• Banks: China implements Basel Committee framework for controlling
large exposures, curtailing bank risk
• State-owned enterprises (SOEs) — China: Leverage
will continue to decline gradually for most rated SOEs through 2018
• Asset Management: China's new capital requirements on distressed
asset management companies are credit positive
Subscribers can access the report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1114092
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Ivan Chung
Associate Managing Director
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077