Top Chinese bond house sees private firms' funding woes easing

Beijing

WHILE many market players expect funding conditions for China's private sector firms to remain tight despite recent easing measures by policymakers, the nation's top corporate bond underwriter predicts otherwise.

China is shifting from de-risking the financial system to also supporting the real economy, said Liu Donghai, general manager of investment banking and asset management department of Bank of China Ltd. The number of debt defaults is likely to fall next year as authorities "actively" deploy support tools to assist funding by private companies, he said in an interview in Beijing.

China's private companies bore the brunt of tight funding conditions in the local market, as investors turned to the safety of debt sold by state-run firms. Government support is rising for the sector in recent weeks. The central bank plans to give 10 billion yuan (S$1.9 billion) to a state-backed insurer to provide credit support for debt sales by private firms. The amount, with the use of leverage and participation of other investors, can help new bond sales of up to 160 billion yuan, deputy governor of the bank said.

Investor reluctance in buying bonds from private firms as well as creditors seeking to get their funds back have been among the issues for non-state companies, according to Mr Liu. "We will see fewer situations like that next year due to the policy shift," he said.

However, not everyone is convinced of the effectiveness of these measures. Sun Binbin, a fixed income analyst at TF Securities, expects only industrial and regional champions to benefit and recommends investors to wait for an improvement in private sector companies before investing.

Bank of China, which ranks No 1 in corporate bond sales in China this year with a 7 per cent market share, is working with credit support providers such as China Bond Insurance Co to sell notes for private companies, Mr Liu said.

Private companies defaulted on 67.4 billion yuan of local bonds this year, 4.2 times that of 2017, Bloomberg-compiled data shows. Moody's Investors Service said on Thursday that while policy easing will alleviate issuers' refinancing pressure, weak issuers remain vulnerable to default risk as financial institutions are still more inclined to extend loans to state-owned companies.

Regarding the dollar bond market, Bank of China expects a potential decline in defaults in China and the possibility of slower rate hikes by the US Federal Reserve to help improve sentiment in 2019. Issuance from the nation dropped by 15 per cent so far this year as investor demand fell amid record domestic note defaults. BLOOMBERG