Shanghai stock exchange issues 'Basel bond' rules for banks

Thu Jan 9, 2014 9:41pm EST

Related Topics

* Banks allowed to sell bonds on stock exchange for first time

* Banks could only issue to interbank market previously

* New 'Basel bonds' count as regulatory capital under new rules

* Exchange allows public floats and private placements

SHANGHAI, Jan 10 (Reuters) - The Shanghai Stock Exchange has set conditions for listed banks to issue bonds on the bourse for the first time, in a move to offer banks a new channel to boost capital.

The China Securities Regulatory Commission (CSRC) and China Banking Regulatory Commission (CBRC) said in November that listed banks would be allowed to issue debt on Shanghai and Shenzhen bourses for the first time, in a step aimed at helping lenders meet tougher new capital adequacy requirements.

The Shanghai bourse on Friday issued specific guidelines via its Twitter-like microblog, saying that 19 Shanghai-, Shenzhen-, and Hong Kong-listed lenders, as well as banks in the process of applying for listings, would be permitted to issue bonds both via public offerings and private placements.

Chinese banks are facing increased pressure to raise funds after the banking regulator began phasing in stricter capital adequacy requirements last year in line with global rules on bank capital known as Basel III.

China has implemented the Basel rules aggressively as it seeks to boost banks' ability to absorb an expected rise in bad loans as the economy slows.

The subordinate bonds described in the rules -- sometimes known as Basel bonds -- will count as regulatory capital because they contain write-down provisions that impose losses on investors if the bank's financial condition deteriorates beyond certain thresholds.

Twelve listed banks have announced plans to raise about 425 billion yuan ($70.19 billion), largely through subordinate bond issues. But until now, banks were only permitted to issue bonds on the Shanghai-based interbank market.

The latest rules say that bonds floated publicly by banks can be listed on the exchange, while the number of investors for privately placed bonds must not exceed 200.

Individual investors must have at least 500,000 yuan ($82,645) in net assets in their exchange account to trade banks' listed bonds, while institutions must have 1 million yuan, the rules say.

Banks, securities brokerages, funds, trusts, insurers, qualified foreign institutional investors (QFII) are among those can buy and "transfer" banks' privately placed bonds.

China's bond market has grown rapidly in recent years, but the market remains fragmented, with different bond types and trading platforms subject to different regulators.

While the CSRC regulates "company bonds" issued by listed firms in stock exchanges, the People's Bank of China oversees the interbank market. The top economic planner, the National Development Commission, also has power to approve so-called enterprise bonds issued by state-owned firms.

While bond trading in the bourses is dominated by retail investors and smaller financial institutions such as brokerages and mutual funds, the interbank market is dominated by commercial banks. The two markets have been segregated since 1996, when regulators launched a campaign to clamp down on speculation by banks in the stock exchanges.

The China Development Bank became the first Chinese bank to sell bonds on the stock exchange last month, but those bonds do not have write-down provisions and will not boost CDB's regulatory capital.

($1 = 6.0550 Chinese yuan) (Reporting by Lu Jianxin and Gabriel Wildau; Editing by Jacqueline Wong)

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