Individuals banned from buying private SME bonds to curb risks
Print Edition
THE Shanghai Stock Exchange has banned individual investors from investing in bonds issued by small and medium-sized enterprises via private placement offerings as part of efforts by the central government to curb rising corporate default risks.
The ban, which came into effect yesterday, also prohibits institutions from selling financial products containing bonds issued by SMEs, said a bourse statement published on its website.
Investors owning such bonds can hold or sell them but are not allowed to buy more, the statement said.
The exchange has also banned limited partnership companies set up solely to buy private bonds.
“Smaller companies will find it harder to issue private bonds,” Jiang Chao, an analyst at Haitong Securities Co, said in a report yesterday. “Private bond issuance has dropped sharply since September 2014, and redemption (of such bonds) is rising as well. We should keep an eye on the default risk.”
The central government moved to curb corporate borrowings due to rising investor concerns over default risks after Kaisa Group Holdings Ltd, a Shenzhen-based property developer, missed a loan repayment due on December 31.
The Shanghai bourse also requires guarantors and underwriters of SME bonds to check the financial status of their clients thoroughly and communicate with regulators immediately if problems arise, according to the statement.
The Shenzhen Stock Exchange imposed the same rules on December 31.
The two exchanges traded 656 private-placement bonds valued at over 92.7 billion yuan (US$14.9 billion) by Wednesday, according to data complied by Wind Information Co.
The SME private-placement bonds were launched by the China Securities Regulatory Commission in early 2012 to help the country’s bond market and to provide an alternative financing channel for SMEs, which found difficulty in getting bank loans.
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