As financial regulators push through with strenuous deleveraging measures, Chinese enterprises are struggling to obtain affordable capital via either bank loans or the bond market.
The recent spate of intensifying regulation and strenuous deleveraging has led to some peculiarities in China’s money markets, with the yield for AAA-grade five year medium-term notes exceeding the rate for bank loans of the same maturity for the first time since 2008.
According to data from Hithink Flush Information, the yield for triple A five-year notes leaped 1470 basis points during the week from 15 to 21 May to hit 6.14%, and well ahead of the 5 year loan rate of 4.75%.
Analysts expect rising costs of bond financing to compel many enterprises to shift from debt issuance to bank loans.
Hithink Flush data indicates that since the start of the year a total of 394 Chinese bond worth a total of 369.426 billion yuan offerings have been scuppered, creating a new record in terms of bond cancellations by value for the period.
Banks are unwilling to provide corporate borrowers with cheap capital either, however, and can be heavily biased against smaller scale companies.
One source from a joint-stock commercial bank told 21st Century Business Herald that extremely few Chinese companies are in a position to obtain loans at the prime rate.
“Although the lending prime rate is currently still under 5%, you can count the number of enterprises that can obtain this rate on one hand,” said the banker. “Under most situations corporate borrowers must accept bank hikes.
“Our bank usually raises the rate by at least 20%, and even higher in the case of some sectors with overcapacity or for small-scale companies.”