Corporate Bank Loans Surge as Bond Issuance and Private Placements Plunge

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China’s listed companies have made increasing use of conventional bank loans to fund their operations this year as levels of equity financing and bond issuance drop.

Data from Wind Information indicates that 3,268 non-financial listed companies in China raised a total of 6.53 trillion yuan during the first half of 2017, for only a modest percentage change compared to the figure of 6.52 trillion yuan for the same period last year.

The sources of financing have changed significantly, however, with the use of bank loans surging at the expense of equity financing and debt issuance.

Equity financing has taken a hammering since the start of the year due to increased regulatory scrutiny of private placements and other forms of refinancing by the China Securities Regulatory Commission.

Data from Wind Information indicates that the first half of 2017 saw a halving of private placements, as well as an ongoing sharp decline in funding levels.

During the first half 205 listed Chinese companies raised 732.4 billion yuan via private placements, of which over 300 billion yuan was raised in January alone.

During the period from February to June less than 70 billion yuan was raised via private placements per month, as compared to an average of 130 billion yuan per month during the same period last year.

Debt issuance has also dried up following the upset on China’s bond market towardsat the end of 2017. According to Wind Data in the first half of 2017 corporate bond issuance was 410 billion yuan, for a decline of over 1 trillion yuan compared to the same period last year.

Bond issuance has also been heavily impacted by the government’s ¬†introduction of strict controls on the issuance of corporate debt by real estate companies in October of last year, given that the property sector is typically the biggest source of bonds.

In sharp contrast to precipitous decline in financing via private placements and bonds, funds raised via loans increased by 484.8 billion yuan to reach 5.46 trillion yuan in total for the first half.

Banks are directing a large volume of this lending towards the real estate sector, due to its low rates of non-performing loans as long as the property market remains buoyant.

While listed property companies saw a year-on-year decline of over 30 billion yuan in funds obtained via equity financing during the first half, and a decline of over 100 billion yuan in funds obtained via bond issuance, funding obtained via bank loans increased by 145.4 billion yuan to reach 737.4 billion yuan in total.

Central state-owned enterprises and the property sector remain bigger users of funds

Goliath central state-owned enterprises remain the most prolific users of capital in the Chinese economy, with PetroChina, Sinopec, China Unicom and Huaneng Power International raising 374.5 billion yuan, 269.3 billion yuan, 103.9 billion yuan and 93.8 billion yuan respectively during the first half.

When broken down by industry the property sector remains the biggest fund-raiser in the Chinese economy, raising a total of 846.7 billion yuan in the first half for a year-on-year increase of 2.5%.

Property is followed by the chemical industry, resource extraction, construction and architecture and utilities and transit, who raised 608.3 billion yuan, 614.2 billion yuan, 545.01 billion yuan, 540.6 billion yuan and 518.9 billion yuan respectively, for year-on-year changes of 4.67%, -8.38%, 2.38%, -1.04% and -22.84% respectively.

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