China opened its high-yield junk bond market Friday, opening a new funding channel that by some estimates will see as much as $50 billion in capital flow to cash-starved private Chinese companies within a few years.
The Shanghai Stock Exchange announced approvals Friday morning for seven Chinese companies to issue high-yield bonds via private placements to qualified investors.
The first issuance was announced half an hour later, when Suzhou Huadong Coating Glass offered 50 million renminbi, or $7.8 million, worth of two-year bonds at a yield of 9.5 percent per year.
Junk bonds are typically riskier corporate bonds rated below investment grade, offering high yields to entice investors. There is no bond rating requirement for them in China.
Small and medium-size companies, which generate about 80 percent of the jobs in China, frequently complain about difficulty in getting bank loans, which is driving some into the shadow banking system. State-run banks often channel the bulk of their annual lending targets straight to other state-backed firms.
Private company managers, analysts and brokers were enthusiastic about the new trial program.
“The new category of bonds offers us a new channel for capital operations,” said Xie Hongbo, chairman of Beijing Ninestar Technology, an Internet service provider that is awaiting permission to raise 10 million renminbi through 18-month bonds on the Shenzhen Stock Exchange.
“It will be quite easy for us to obtain funding that banks are typically reluctant to offer to us small companies.”
Analysts expect about 4 to 5 billion renminbi in high-yield bonds to be issued in 2012, growing quickly to about 100 billion renminbi in the following year.alternative investments, capital channel for chinese SME, China Bond Market, China bonds, chinese high yield bonds, chinese private placement, chinese shadow banking system, Junk Bond Market asia, new funding source