Shanghai bourse tightens scrutiny over corporate bond issuance

Shanghai

THE Shanghai Stock Exchange (SSE) said on Friday it is tightening scrutiny over corporate bond issuance, and has punished a brokerage for lax due-diligence in bond underwriting.

The move comes after Chinese exchanges strengthened inspections on initial public offerings (IPOs), as regulators seek to limit financial risks while promoting growth of China's capital markets.

China has about US$4.5 trillion of outstanding corporate bonds, traded on the country's exchanges and the interbank market.

SSE, China's main exchange for corporate bond trading, said it has launched on-site inspections on select bond issuance applicants with a focus on robustness of due diligence by underwriters.

The bourse said in a statement that it publicly censured metal-products maker Ningxia Yuangao Industrial Group for "fake" and inadequate disclosure ahead of its default, and sent warning letters to its underwriter Huaxi Securities and its law firm.

Ningxia Yuangao could not be reached immediately for comment.

Huaxi Securities said it had nothing to add to what the SSE said.

China is stepping up reforms of its capital markets. It has adopted a US-style registration system for securities issuance on SSE's Nasdaq-style Science and Technology Innovation Board - or STAR Market for short - as well as SSE's corporate bond market.

But signs of lax due diligence by underwriters led to regulators tightening screws on IPOs late last year.

Over 100 companies have suspended their IPO process since December, with many withdrawing applications voluntarily.

China's top securities regulator Yi Huiman said last month that the registration-based IPO system does not mean lower bars for listing, vowing to punish underwriters who try to bring "sick" companies to the IPO market.

SSE said that its inspectors of bond issuances would take a page from the playbook of those in the IPO market.

On-site inspections, which last one to two weeks and involve queries, interviews, and checking of backup materials, are aimed at bolstering the quality of information disclosure and due diligence, SSE said. REUTERS