China Convertible Bond Issuance Accelerates As Rules Evolve

     BEIJING (MNI) - More convertible bond issuances are on the way for Chinese

bond investors this year, with eased regulations and ample market demand

encouraging companies to step into the market.

     As of the end of October, a total of 11 convertible bonds worth CNY44.6

billion had been issued this year, more than double the CNY21.2 billion issued

all of last year, according to data from Wind, a Shanghai-based financial data

supplier.

     In the past, listed companies preferred not to issue convertible bonds

because they could not meet the financial requirements needed by regulators for

such an issuance, and also because issuing new stocks to a targeted group of

investors was a much easier way of raising funds, simply because there was

nothing to limit companies from doing so. 

     But convertible bonds became more popular as regulators began reining in

publicly listed companies from refinancing by placing new shares to investors. 

     In February, the China Securities Regulatory Commission (CSRC) issued

guidance saying that publicly listed companies now must wait 18 months after the

last time they received funds -- whether through share placements, initial

public offerings or other refinancing methods -- before the next new share

placement can be made, with the scale of issuance not exceeding 20% of total

shares. 

     The CSRC also ruled that the pricing benchmark day of the new share placing

can only be the first day of the issuance period, while before companies could

use the day the company board published its approval of the share-placing plan

to be the pricing benchmark day -- usually meaning that the share placement

price would be cheaper than the market price.  

     Convertible bonds, however, are exempt from a similar rule. In addition, on

Sept. 8 the CSRC revised bidding rules for convertible bonds from a "money

bidding" process to a "credit bidding" process, which essentially means

investors now do not have to put their money into escrow during the bidding

process, and even individual investors who have small amounts of principal can

bid on convertible bonds for the full possible amount, creating ample demand for

such bonds.

     So far this year, 170 listed companies have published their plans to

refinance by issuing convertible bonds, with a total planned issuance of

CNY480.1 billion. And 97 out of the 170 listed companies published their

convertible bond issuance plans after Sept. 8 -- the day bidding rules were

revised.

     The CSRC also has accelerated its approval process for listed companies to

issue convertible bonds. As of last Friday, the CSRC had approved the requests

of 30 companies to issue convertible bonds this year, and 65 other company

requests are currently under CSRC review.

     "Convertible bond issuance has started to gain momentum, and we expect the

issuance pace will not be slow in the next several months, and some [issuances]

might even have a very large scale," Industrial Securities said in a report last

weekend. "The credit-bidding rule makes it easy for the market to absorb the

impact of those issuances, while we need to watch whether the large supplies

will cause downward pressures on their pricing."

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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