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Chinese companies need effective talks with investors
By Fitch Ratings |
December 13, 2012, Thursday
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Print Edition
Print Edition
POOR information flow and difficulties contacting Chinese companies after bond deals close is suppressing investment appetite from international investors, in addition to concerns over financial disclosure and corporate governance. These were among the key points of discussion during recent meetings with international investors based in New York, Los Angeles, Hong Kong and Singapore.
We believe that while investment interest will remain strong in 2013, these shortcomings may dampen global investors' interest in Chinese corporate debt, even as Chinese corporate appetite for international debt issuance persists throughout 2013.
Investors expressed frustration that the level of communication from many Chinese corporate treasury teams was extremely poor compared with other multinational corporations issuing bonds.
Specifically investors highlighted investments they had made in first-time or non-frequent issuers where, after the bond deals wrap up, information flow had been sparse and their calls to the company for updates had not been returned. Investors were at a loss to determine whether this was due to a lack of understanding of international bond investor requirements versus those of private wealth investors, whether it was force of habit from having had readily available bank funding historically, or something else which they had not yet been able to determine.
At the same time the level of interest from global investors in emerging Asia, and Chinese corporate bonds, in particular, was significantly greater, and across a broader corporate spectrum, than evidenced in our discussions with investors 12 months ago.
It suggests that clearer and more frequent communication from chief financial officers in emerging Asia is likely to be critical in boosting available liquidity for refinancing and future fundraising.
Short-seller reports were still at the forefront of investors' minds, together with the current debate between the US Securities and Exchange Commission and US-listed Chinese companies' auditors. While short selling research reports continue to be a risk for both the reputation of Chinese corporates and their access to liquidity, investors did not view them as wholly negative.
Several took a partially positive stance toward the short sellers, believing them to be an effective tool to help force some Chinese corporates to improve the quality and frequency of their disclosure. This would seem in part to be borne out by reactions to more recent reports, whereby corporates under scrutiny from the short sellers have appeared better prepared to defend their business models.
Improving disclosure
We continue to believe that these reports represent significant downside risk for investors, as they impact a corporate's available liquidity, whether proven or otherwise. Corporates' best defence against the "guilty-until-proven-innocent" dilemma posed by such reports will remain in their own hands through improved disclosure.
Interest in capital market fundraising from prospective Chinese corporate has been at an all-time high in 2012, and while Fitch carried out a large number of initial ratings for prospective Chinese international corporate debt issuers, fewer than one third opted to request publication of their ratings, and only about half of those actually went on to issue debt.
We believe that this Chinese corporate appetite for potential international debt issuance will persist throughout 2013, and that interest from global investors will also be strong. Improved governance, disclosure and communication are likely to be the main driving factors in determining whether this appetite from both sides creates a climate that results in increased issuance.
Fitch's ratings for private sector Chinese corporates are clustered around the "BB" level and below and for the mainly state-owned and state-supported companies at the investment grade.
The article was based on a release issued by Fitch Ratings yesterday. The opinions expressed are those of Fitch Ratings.
We believe that while investment interest will remain strong in 2013, these shortcomings may dampen global investors' interest in Chinese corporate debt, even as Chinese corporate appetite for international debt issuance persists throughout 2013.
Investors expressed frustration that the level of communication from many Chinese corporate treasury teams was extremely poor compared with other multinational corporations issuing bonds.
Specifically investors highlighted investments they had made in first-time or non-frequent issuers where, after the bond deals wrap up, information flow had been sparse and their calls to the company for updates had not been returned. Investors were at a loss to determine whether this was due to a lack of understanding of international bond investor requirements versus those of private wealth investors, whether it was force of habit from having had readily available bank funding historically, or something else which they had not yet been able to determine.
At the same time the level of interest from global investors in emerging Asia, and Chinese corporate bonds, in particular, was significantly greater, and across a broader corporate spectrum, than evidenced in our discussions with investors 12 months ago.
It suggests that clearer and more frequent communication from chief financial officers in emerging Asia is likely to be critical in boosting available liquidity for refinancing and future fundraising.
Short-seller reports were still at the forefront of investors' minds, together with the current debate between the US Securities and Exchange Commission and US-listed Chinese companies' auditors. While short selling research reports continue to be a risk for both the reputation of Chinese corporates and their access to liquidity, investors did not view them as wholly negative.
Several took a partially positive stance toward the short sellers, believing them to be an effective tool to help force some Chinese corporates to improve the quality and frequency of their disclosure. This would seem in part to be borne out by reactions to more recent reports, whereby corporates under scrutiny from the short sellers have appeared better prepared to defend their business models.
Improving disclosure
We continue to believe that these reports represent significant downside risk for investors, as they impact a corporate's available liquidity, whether proven or otherwise. Corporates' best defence against the "guilty-until-proven-innocent" dilemma posed by such reports will remain in their own hands through improved disclosure.
Interest in capital market fundraising from prospective Chinese corporate has been at an all-time high in 2012, and while Fitch carried out a large number of initial ratings for prospective Chinese international corporate debt issuers, fewer than one third opted to request publication of their ratings, and only about half of those actually went on to issue debt.
We believe that this Chinese corporate appetite for potential international debt issuance will persist throughout 2013, and that interest from global investors will also be strong. Improved governance, disclosure and communication are likely to be the main driving factors in determining whether this appetite from both sides creates a climate that results in increased issuance.
Fitch's ratings for private sector Chinese corporates are clustered around the "BB" level and below and for the mainly state-owned and state-supported companies at the investment grade.
The article was based on a release issued by Fitch Ratings yesterday. The opinions expressed are those of Fitch Ratings.
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