China Official: Advent Of Junk Bond Won't Affect Bill Mkt
323 words
21 September 2006
05:58
Dow Jones International News
English
(c) 2006 Dow Jones & Company, Inc.
SHANGHAI (Dow Jones)--The advent of China's first junk bond last month isn't likely to hurt the development of the domestic corporate bill market, a central bank official said Thursday.
Last month, a local ratings company downgraded its credit rating on CNY1 billion of bills issued by toll-road operator Fuxi Group from A-1 to junk grade C due to previously undisclosed loan guarantees for one of its shareholders.
"The Fuxi case won't affect the development of the short-term bill market," Mu Huaipeng, director of the People's Bank of China's finance market department, said on the sidelines of the Asia-Pacific Finance and Development Center Biennial Forum in Shanghai.
"There may have been some overreaction in the market, but in the long run this case will help institutions to improve their ability to deal with risk," he said.
Last year, China's central bank allowed private companies to issue bills to increase their fund-raising channels. But the Fuxi case has made institutional investors wary of the debt securities, particularly those issued by private companies.
Industrial & Commercial Bank of China (ICBC.YY), the underwriter of Fuxi's bill issue, has recommended investors be reimbursed the value of the bills before they are due to expire, a person familiar with the situation previously told Dow Jones Newswires. But it isn't clear whether the bank is considering paying back investors itself.
The bills are due to expire March 2007.
Meanwhile, Mu made it clear the central bank doesn't intend becoming involved in the situation, leaving it instead to the market to resolve.
"We should learn a lesson from this case. We should improve information disclosure practices and improve the credit ratings system," Mu said.