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More China bond deals pulled after new regulation

[SINGAPORE] More Chinese onshore bond sales are being pulled following the new regulation on December 8 that banned bonds rated below AAA from being used as collateral for repurchase agreements.

A planned 322 million yuan (US$52m) collective bond offering by seven companies based in Hunan province was postponed due to rising yields, according to a filing on the China Bond website.

Changzhou Tianning Construction Development, a local government funding vehicle, also decided to pull an offering that was set to launch yesterday. The company said in a filing that the move was to avoid a higher coupon.

Meanwhile, Shanghai Dingshanhu Xincheng, an LGFV, pulled a planned 1.3 billion yuan six-year offering, citing similar reasons.

Jishou Huatai State-Owned Asset Management Company, another LGFV, said it would reschedule a proposed 800 million yuan seven-year offering. The sale was originally slated for December 11.

In an announcement last Monday, the China Securities Depository and Clearing Corp said only bonds rated AAA or from issuers graded AA or above could be used as collateral for repurchase agreements.

The regulatory change ruled out about 70 per cent of the 1 trillion yuan (US$161 billion) of bonds cleared on the CSDC platform, according to Bank of America Merrill Lynch. Bonds from local government funding vehicles accounted for most of the bonds affected because they were typically rated lower, analysts said.

The move triggered a liquidity crunch to send bond yields soaring. AA-rated five-year corporate bonds, for example, saw yields jump to 6.5 per cent on December 10 from 6.08 per cent before the new rules were announced. They were quoted at around 6.4 per cent this afternoon.