2009-10-27 16:08:30People’s Bank, Banking Regulatory Commission: Financial Bonds by

On August 31, 2009, the People’s Bank of China and China Banking Regulatory Commission promulgated an announcement (Announcement No.14 [2009]), allowing the issuance of financial bonds by financial leasing and
auto financing companies which have met the conditions as stipulated in the Announcement. Such allowance would break the previous situation of financial bond issuance monopoly.
 

The conditions are stipulated in the Announcement such as a financial leasing company with the registered capital of no less than RMB 500 million or equivalent value in a freely convertible currency, an auto financing company with the registered capital of no less than RMB 800 million, good operating performance, profitable for the latest three years consecutively with profit margin for the latest year no less than the average in the industry and stable profit expectation, average distributable profit over the latest three years sufficient to defray on year’s interest payments on the bonds issued, and the capital adequacy ratio shall be no less than 8% upon the issuance of the bonds. The financial leasing companies established by commercial banks are required to provide guarantors with guarantee capacity for its issuance of the
bonds, if they are well-qualified but have operated for less than three years.

According the People’s Bank of China, this Announcement is good for financial leasing companies and auto financing companies to broaden their funding sources and so to push forward the development of the leasing industry. The allowance of financial bonds issuance would promote auto finance in China, and thus support the revival of the auto industry. With efficient risk-control measures, it is also good for China’s bond market by scaling the issuance of bonds and widening the scope of issuers.

Mr. Chen Jianheng, a bond market researcher of China International Capital Corporation, commented on the nnouncement that such financial bond issuance by the financial leasing companies and auto financing companies would not significantly affect the whole bond market for the sake of the scale of such companies and their issuance.
 

According to statistics data, there are registered 12 financial leasing companies with the total capital of RMB 108.1 billion, and 10 auto financing companies with the total capital of RMB 37.8 billion all over the country by the end of July 2009. In China, financial leasing companies provide finance support for enterprises, primarily small and medium-sized enterprises, by leasing equipments. And auto financing companies primarily provide financing services for auto buyers and vendors.