The week in review: February PMIs miss the mark, CSRC finalises ‘company bond’ rules, NYSE begins Cnooc delisting
In this round-up, factory and services activity growth slows down in China, the securities regulator tweaks rules on exchange market corporate bond issuance, and the New York bourse moves ahead with delisting Chinese oil giant Cnooc on alleged military ties.
The finance chiefs and central bank governors of the Group of 20 nations have said they will support “the most vulnerable countries, especially those facing an unsustainable debt burden” as the Covid-19 pandemic continues to pressure the global economy, at the G20 Finance Ministers and Central Bank Governors meeting last Friday.
In a press release, they said they plan to effectively implement the G20 debt treatment framework and debt relief initiative, and called for international financial institutions to “explore additional tools to meet long-term global financing and reserve needs”. The International Monetary Fund should formulate a proposal for a general allocation of special drawing rights (SDRs), they added.
Yi Gang, governor of the People’s Bank of China (PBoC), said the G20 should also focus on financial risks stemming from climate change, in addition to using a general SDR allocation and debt treatment to support low income countries. Yi added that the Chinese central bank is willing to work with the relevant parties to promote green transformation, according to an update on the PBoC website.
The Politburo of the Chinese Communist Party held a meeting to discuss China’s 14th ‘five year plan’. The meeting, chaired by president Xi Jinping, called for the country’s “proactive fiscal policy to be more efficient and sustainable”, and the “prudent monetary policy more flexible, targeted and appropriate,” according to state media Xinhua.
China’s official manufacturing Purchasing Manager’s Index (PMI) was 50.6 in February, down from January’s 51.3, while non-manufacturing PMI dropped to 51.4 from 52.4, according to the National Bureau of Statistics (NBS). Both PMI readings were below expectations.
The NBS cited the disruptions related to the Lunar New Year holiday as the main factor for a slowdown in factory activity last month.
China can and should set a numeric growth target for 2021 at the annual ‘Two Sessions’ meetings this week, said Zhang Liqun, a researcher at the Development Research Center of the State Council. Zhang expects the country’s GDP to grow at least 8% this year.
There have been “fundamental improvements” in terms of risks in China’s internet lending sector, said the China Banking and Insurance Regulatory Commission said last Friday. The regulator said it will make sure commercial banks continue with their existing online loans and keep up the quality of customer service during the transition period to comply with new online lending requirements.
Thirteen Chinese government bodies — including the National Development and Reform Commission, the Supreme People’s Court, Ministry of Finance and the PBoC — have issued guidelines on bankruptcy administrators. They asked Chinese financial institutions to increase their participation and support for companies’ bankruptcy process.
Some 2.09m new investors entered the A-share market in January, representing a 161.6% increase year-on-year, according to the China Securities Depository and Clearing Corp.
The China Securities Regulatory Commission (CSRC) said it will conduct an “in-depth study” on the feasibility of implementing a T+0 trading mechanism for Shanghai’s Star board. It also plans to support more agricultural companies raise funds in the equities market, through IPOs and post-IPO financings.
The CSRC officially published revised rules for the issuance of ‘company bonds’ last Friday, having taken feedback for the changes in September and October 2020. Company bonds are corporate bonds issued in the exchange market and regulated by the CSRC.
Under the new rules, a registration-based system for company bond sales will replace the existing approval-based system. This came after China’s new securities law proposed a registration-based issuing system for all domestic bonds last March.
Also, in line with the proposed revisions, the CSRC scrapped the requirement for issuers to obtain a domestic credit rating for their deals. The National Association of Financial Market Institutional Investors had also decided to allow corporate issuers to issue unrated bonds in the interbank market. The CSRC updated the guidelines for ratings agencies last Friday.
The CSRC has clarified or made relevant changes to the eligibility of issuers, the registration procedures, bond trustees, the use of bond proceeds, information disclosure requirements and venues, and investor classification.
Issuers with outstanding defaulted debt or those whose three-year average profits are not enough to service one annual interest payment will not be allowed to sell bonds. Restrictions have also been put in place for issuers subscribing to their own bonds. Company bond issuance must not lead to an increase in local government debt, and any changes in the use of proceeds must be approved in the bondholder meetings.
The CSRC published a Q&A on its website about the long IPO queues at the Shanghai and Shenzhen stock exchanges as well as concerns on a tightening in listing approvals.
The strong IPO demand reflects the robust development of China’s real economy and the increased attraction of the onshore capital market amid an ongoing reform, the securities regulator said. The growing number of companies lining up for IPOs at the two exchanges also shows that the market requires some time to adapt to a registration-based issuing system, added the CSRC.
The securities regulator denied there was a tightening in listing approvals after its recent guidelines on on-site inspection at pre-IPO companies. Such inspections are helpful to improving the quality of listing information disclosure, which is key to a registration-based IPO system, the CSRC said. It added that there has been a rise in IPO approvals this year by February 19 to 66 cases, compared to the same period in 2020.
Property developer China Fortune Land Development, which had defaulted on some onshore loans, has revealed Rmb5.817bn of new overdue debt, taking the total unpaid amount to Rmb11.054bn, the company said in a stock exchange filing in Shanghai.
The latest defaults involve bank loans, trust loans and offshore bonds, the company said, reiterating that that it has not missed payments on any domestic bonds.
Ant Group is in talks with other stakeholders in its new consumer finance unit for an additional Rmb30bn in capital to meet regulatory requirements, Reuters reported. Ant is seeking to transform into a financial holding company and plans for the unit, called Chongqing Ant Consumer Finance Co, to fold in its micro-lending businesses.
The New York Stock Exchange has moved to delist Cnooc, after it determined that the Chinese state-owned oil giant is “no longer suitable for listing” in light of an executive order signed by former US president Donald Trump last November. Trading of the company’s American depository receipts (ADRs) will be suspended from March 9, though a target date for the completion of the delisting was not provided by the bourse. Cnooc has the right to appeal its decision, the NYSE said.
Shenzhen government-owned Shenzhen International Holdings and Shenzhen Kunpeng Equity Investment Management Co plan to acquire 23% of Chinese retail giant Suning.com Co, the companies announced.
Shenzhen International Holdings’ subsidiary Shenzhen International Holdings (SZ) and Shenzhen Kunpeng will purchase 8% and 15% of the Shenzhen-listed shares of Suning.com, respectively, from Suning Holdings Group Co, Suning Appliance Group Co and Xizang Trust Co. At a price of Rmb6.92 per share, the deal is valued at Rmb14.82bn.
The injection of state-owned capital is expected to help relieve Suning’s debt pressure. The company reported Rmb30.8bn of cash as of September 2020, with over Rmb70bn of interest-bearing debt, including Rmb28.1bn and Rmb6.25bn of short-term and long-term borrowings, respectively, and Rmb8bn in bonds. Its full year 2020 revenues dropped 4%, and it recorded a net loss of Rmb3.9bn.
*China has decided to extend the tariff exemptions for 65 US imported goods to September 16 after the current exemption expired on February 27, the State Council announced.