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The week in review: China extends $2.1bn in debt relief to developing countries, top regulators vow ‘zero tolerance’ on misconduct after defaults

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By Addison Gong
23 Nov 2020

In this round-up, Beijing says it has suspended $2.1bn in debt payments from two dozen nations under the G20 framework, and the top Chinese financial regulators send strong signals to the onshore market in the wake of a string of domestic bond defaults.

China has extended $2.1bn of debt relief to developing nations, part of a wider G20 programme to help countries deal with the fall-out of the coronavirus.

Liu Kun, the Chinese finance minister, told reporters that China accounted for the highest amount of debt deferred among G20 nations under the group’s Covid-19 debt relief initiative. He was speaking on Friday, before the virtual G20 Leaders’ Summit over the weekend.

China has been criticised in the past for not including loans from policy banks in its debt relief plans. That is no longer the case.

According to Liu, the China International Development Cooperation Agency and the Export-Import Bank of China have so far agreed to suspend $1.353bn in payments from 23 countries and China Development Bank $748m by the end of September.

Chinese president Xi Jinping, speaking at the virtual summit, said China will continue to provide debt relief measures and necessary financing support to developing countries. He also promised to lower tariffs, and help developing countries “better integrate into the global markets”.

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The State Council’s Financial Stability and Development Committee, chaired by vice Chinese premier Liu He, held a meeting on Saturday. According to minutes published on the government’s website, a ‘zero tolerance’ stance and harsh punishment will be imposed on illegal activities such as fraudulent issuance of securities, disclosure of false information and misappropriation of issuance proceeds.

The State Council’s statement came following the high-profile domestic bond defaults by Chinese state-owned enterprises such as Huachen Automotive Group Holdings Co, Tsinghua Unigroup Co and Yongcheng Coal and Electricity Group Co.

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The Shanghai Stock Exchange (SSE) plans to strengthen its risk management and its process for dealing with defaults after recent failures to pay caused volatility in the onshore bond market, the bouse said in a Q&A on Friday.

The exchange plans to better monitor the risks of corporate bonds, strengthen cross-market regulatory cooperation, continue improving the issuance and trading mechanism of bonds and strengthen information disclosure. The SSE added that it will guide investors to better analyse the market and make rational investment decisions.

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The China Securities Regulatory Commission (CSRC) sent a warning letter to Huachen Automotive Group Holdings Co last Friday, following the company’s recent defaults, according to an update on the regulator’s website.

It added that an investigation has been launched into potential information disclosure violations at the company and third-party agencies related to the defaulted bonds. The CSRC also reiterated its ‘zero tolerance’ stance on illegal activities in the bond market.

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China is facing a pension funding gap of between Rmb8tr and Rmb10tr in the next five to 10 years, said a recent report by the Insurance Association of China. The association expects the gap to further widen over time.

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The establishment of a new futures exchange in Guangzhou has been approved by China’s State Council, and the exchange could start operations before the end of the year, onshore media Securities Times reported.

The CSRC has in October set up a preparatory team for the establishment of Guangzhou Futures Exchange, part of an effort to develop the financial markets in the Guangdong-Hong Kong-Macao Greater Bay Area.

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Foreign investors will be allowed to trade onshore palm oil futures contracts on the Dalian Commodity Exchange from December 22, the CSRC announced. Palm oil futures contracts were listed on the exchange in late 2007.

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FTSE Russell announced the results of the latest quarterly review of its FTSE Global Equity Index series, adding a total of 23 Hong Kong-listed stocks, A-shares, and American depositary shares. The list includes one A-share, Guolian Securities. The changes will become effective on December 21.

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Guolian Securities’ upcoming inclusion by FTSE Russell came as the Chinese brokerage received a warning letter from the CSRC following its failed acquisition of Sinolink Securities. The acquisition, which would have created an entity with an over Rmb100bn in assets, was announced in September before coming to an abrupt halt one month later when the two parties announced that they could not agree on some core terms of the deal.

The CSRC, which had launched an investigation into potential information disclosure violation at the two brokerages, said in the warning letter that Guolian failed to “effectively evaluate” the regulatory policies when planning the major asset restructuring and did not “sufficiently prepare” for alternatives plans. It also failed to “carefully assess” the deal’s impact on the securities market.

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Industrial and Commercial Bank of China (ICBC) and China Minsheng Bank have been named and shamed by the China Banking and Insurance Regulatory Commission (CBIRC) for illegal charges relating to loans to micro and small-sized enterprises.

Nine ICBC branches charged over Rmb22.8m in commitment fees and advisory fees to 20 small companies between January 2017 and October 2019, according to the regulator. The charges at Minsheng’s headquarter and branches for the September 2016 to November 2019 period totalled Rmb43.7m. Minsheng was found to have charged high fees in insurance-related businesses. The two banks did not reply to requests for comment. 

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The municipal government of Shanghai rolled out 17 measures to increase the quality of listed companies on Friday. These include encouraging the listing of red-chip companies, which are Chinese companies already listed in Hong Kong, as well as those in areas such as artificial intelligence, biomedicine, new energy vehicles and new economy companies.

The government also plans to strengthen information disclosure requirements and better protect investors’ rights. It will simplify the bankruptcy and reorganisation procedures for listed firms. The regulator said it encourages firms that need to exit the market to delist, merge or restructure.

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China Evergrande Group has reached agreements with strategic investors holding Rmb130bn of equity in its property arm and flagship subsidiary Hengda Real Estate, helping the company avoid having to find the money to buy back the shares.

Investors with Rmb125.7bn of equity have agreed to convert their equity into common shares. The potential share purchase was a condition of Hengda’s listing failing earlier this year. Evergrande has repurchased the remaining Rmb4.3bn of equity, the company said in a Sunday stock exchange filing in Hong Kong.
By Addison Gong
23 Nov 2020