NDRC, the National Development and Reform Commission set rules requiring companies to issue bonds with longer than a year maturity. This is in order to seek issuing foreign debt approval. However, the current approval-based system for companies to purchase debt offshore would prolong the application process. This scenario somehow could become a challenge for the firm’s refinancing. According to the analyst, the draft rules reflect Beijing’s current effort in battling property developers defaults. Thus, NDRC would set the company priorities. The company states that it would become the prevention of risks.
The draft contains few shifts in the prevention of risk. Meanwhile, the content of the draft is about the requirement debt proceeding cannot add to the defined hidden local government financing vehicles. This draft is active in the offshore market this year. A Hong Kong-based DCM head at a securities house argued that when it comes to issuers not accessing international markets, they will be more selective. According to the banker this scenario is not something that the authorities would expect in the future, especially Chinese security houses’ exposure.
The red tape of the systems or the major changes covers the increase on the corporate compliance threshold for issuers. This way would impact those controlling shareholders. Particularly the shareholders committing crimes like corruption to submit the information every year to NDRC. This also included both proceeds and situations affecting their abilities to pay the debt.
Based on the previous rules, the approach was filling-based. This system allowed issuers to apply for a bond issuance quota. So NDRC could reject or accept based on its own assessment. The total of the quota in this case should mirror the use of the proceeds. However, the problem is, issuers tend to get a smaller quota than applied.
