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China requires new private corporate bond issues to come with CDS - sources

BEIJING/HONG KONG (Reuters) - China’s securities regulator has asked brokerages to insure new bonds from private companies with credit default swaps (CDS), a move aimed at helping firms struggling to raise funds to come to the market, several sources said on Wednesday.

However, companies rolling over old bonds will not be affected, the China Securities Regulatory Commission (CSRC) said in unofficial guidance, sources said.

Brokerages that are not licensed to issue CDS may be required to apply for that status through licensed brokers, the sources said.

If a new bond is not paired with a CDS, exchanges hosting that bond will need to explain the absence of CDS to the securities regulator and seek approval, the sources said.

The CSRC did not immediately respond to Reuters’ request for comment.

CDS contracts are insurance against default and are a relatively new product in China.

“This guidance means that new issuance by private enterprises, new bonds will need to be matched (with CDS), regardless of the use of proceeds,” said one source close to the Shanghai Stock Exchange.

“This is basically a compulsory requirement. CDS may not be required to roll over old bonds. New bonds will be required (to use CDS),” said a source close to the Shenzhen Stock Exchange.

There are currently eight Chinese brokerages licensed to issue CDS: Citic Securities, China Securities, China International Capital Corp, Huatai Securities, Haitong Securities, China Merchants Securities, GF Securities and Guotai Junan Securities.

Reporting by Xiaochong Zhang and Noah Sin; Editing by Tony Munroe and Louise Heavens