* Slow pace of regulatory approvals hampers AMCs as capital needs rise
By Ina Zhou
HONG KONG, March 20 (IFR) - The head of China’s largest state-owned bad-loan manager has called for simpler bond issuance rules to enable asset management companies to keep pace with a rising tide of non-performing debt.
Lai Xiaomin, chairman of China Huarong Asset Management , criticised the onerous regulatory vetting of domestic financial bonds, equivalent to senior unsecured vanilla bonds, in a submission to the just-ended annual National People’s Congress, the official Securities Times newspaper reported last week.
“The efficiency of financial bond issuance has been significantly affected by multi-layers of regulators, a lengthy and opaque review process ... that, in particular, has impaired the pace of development and quality of AMCs (asset management companies),” Lai was quoted as saying.
He proposed to change the current approval regime for AMC financial bonds in favour of a registration-based scheme, such as a medium-term notes (MTN) programme or a shelf registration, in order to accommodate the industry’s ever-growing capital needs. At present, AMCs have to seek approval for each and every new bond issue.
Lai has first-hand experience of the cumbersome process. Huarong shareholders approved a plan to raise 35 billion yuan ($5.1 billion)through financial bonds last May, but the offering was only launched in late November after it received the all clear from the People’s Bank of China and the China Banking Regulatory Commission, the two main regulators of AMCs.
Underwriters said a five-month approval period was pretty standard for financial bonds, but too slow to keep up with AMCs’ growing capital appetite.
They said a registration-based scheme for AMC bonds had previously been discussed, but that regulators had not agreed to it.
“We had discussions with regulators earlier and one of them was actually in favour of putting the big four AMCs’ financial bonds under a registration-based scheme,” said a Beijing-based underwriter who worked on several AMC debt offerings.
“However, the scheme went nowhere as another regulator was vehemently against it,” she said. “Let’s hope the outspoken Mr Lai can win over regulators this time.”
Long waiting times are hurting AMCs’ access to funding as most other onshore bond formats are currently closed to them.
The 35 billion yuan financial bond issue was Huarong’s only domestic bond offering last year, whereas it sold $6 billion of US dollar-denominated notes in the offshore market.
As they qualify as financial institutions, state-owned AMCs cannot use more efficient debt instruments, such as MTNs and commercial paper, designated for non-financial issuers under the oversight of National Association of Financial Market Institutional Investors (NAFMII).
The big four AMCs are also blocked from selling onshore preferred shares to bolster their capital because they are not listed on domestic stock exchanges.
China Cinda Asset Management inaugurated a new instrument for AMCs last June when it issued the first Tier 2 notes in China’s domestic market from a state-owned bad loan manager.
This remains the only Tier 2 issue from an AMC to date. Huarong’s board authorised a planned 30 billion yuan Tier 2 issue in late 2015 but it is still awaiting regulatory approvals.
Without a more favourable funding environment at home, Chinese AMCs are bound to continue going overseas for funding as their capital ratios deteriorate.
At the end of last year, Huarong’s capital adequacy ratio had dropped to 11.1 percent, below the mandatory requirement of 12.5 percent, after the total assets of its distressed asset management business rose 71.8 percent year-on-year to 628.71 billion yuan, according to the Hong Kong-listed company’s latest financials.
Last May, Huarong increased its offshore $5 billion MTN programme to $11 billion, registered in the name of special purpose vehicle Huarong Finance 2017 Co.
The dearth of domestic capital tools drove China Cinda to sell the first US dollar-denominated Additional Tier 1 issue from an AMC last October after it completed the acquisition of Nanyang Commercial Bank.
Reporting by Ina Zhou; Editing by Vincent Baby