What Analysts Say About China's Foreign Bond Quota Extension

(Bloomberg) -- China’s National Development and Reform Commission has extended the validity of foreign bond issuance quotas for another 56 Chinese companies by half a year to end of June, in a bid to ease funding constraints facing the nation’s corporate sector.

The 56 issuers include CAR Inc., Sunac China Holdings Ltd., Xinhu Zhongbao Co. according to the document dated Dec. 24.

This follows a similar move by the regulator for 33 separate companies reported by Bloomberg News earlier this week.

Here is what market participants say about such a move:

Judy Kwok-Cheung, director of fixed income research at Bank of Singapore: We are not overly concerned about potential supply as onshore funding cost is lower relative to offshore, reducing the supply pressure for overseas bond issuance. Many of the developers are utilizing new proceeds for refinancing offshore funding. In the dollar bond space, market demand has been healthy in meeting supply so far.

Vivien Gui, managing director of fixed income at Great Wall Pan Asia Asset Management: The market will be happier if there is no extension. I believe some of these 89 issuers may not be able to make it due to quality issue. It is in fact more important if the benchmark names come to flood the market with their quota. The market started 2019 with good rally. But by the end of the day, investors should decide if they would buy the lower quality ones. One thing to note is that NDRC has no responsibility to screen the names for the buyers. We have to do the homework ourselves.

Jimond Wong, senior portfolio manager for Asia fixed income at Manulife Asset Management: This is in line with our expectations. Some companies were unable to print last year due to market conditions or other factors, but they still have refinancing or funding needs this year. I wouldn’t immediately link the quota extension to the broader easing measures. However, extending quota doesn’t mean these companies can print at their own will -- it’s still a function of market dynamics and individual credit strength.

Yin Chin Cheong, analyst at CreditSights: The extension of the NDRC quotas does not alter our
expectations. What I find surprising was instead of extension to the usual March 31, this time round, the extension is up to June 30. Perhaps, with this longer extension, it could spread out the pace of new supply rather than having the new issues all clogging in the first quarter of 2019.

Charles Macgregor, head of Asia at Lucror Analytics: The extension of the quotes makes sense given the volatile market conditions in the second half of 2018. This will facilitate ability of lower rated names to access the market.

2019-01-09 08:28:58.235 GMT

By Carrie Hong and Narae Kim