SHANGHAI: The Shanghai Stock Exchange has warned several securities firms to strengthen risk control in their corporate bond and asset-backed securities (ABS) businesses, two sources with direct knowledge of the matter said on Monday.
Two sources told Reuters that they saw a document from the exchange requesting stronger risk management.
The exchange also asked securities firms to boost issuance by high quality firms and assess underwriting risks from coal, steel, real estate and other sectors with overcapacity, sources said.
An exchange official declined to comment.
Corporate bond issuance on the exchange has skyrocketed over the past year as firms have taken advantage of easier issuance regulations and falling yields to issue cheaper debt.
However, with corporate defaults on the rise and high-rated debt prices at or near multi-year highs, some analysts have warned that credit quality in some portions of the bond market may be deteriorating.
Moreover, corporate bond financing has taken over from China's murky "shadow banking" sector - the locus for a large portion of China's existing bad debt problem - as the largest source of non-bank financing in the economy.
"For the whole year of 2015, the biggest increment in aggregate financing came from the corporate financing via bond and stock markets," Zhou Hao, senior emerging markets economist a Commerzbank in Singapore, said in a research note last month.
"It appears to us that commercial banks have few incentives to provide loans directly to corporates especially due to credit concerns over SMEs, but turn to capital markets to finance the corporates indirectly."
Recent Reuters analyses of exchange data found that large proportions of new issuers in recent months were in struggling sectors including real estate, steel, energy and infrastructure.
In addition, issuance of so-called private placement debt - marketed directly to institutional investors and then later listed on the exchange - has risen especially fast.
Comments
Comments are closed.