China Issues First Special Bond to Support Beleaguered Regional Banks

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China has just seen the launch of its first special bond by a local government to support ailing smaller players in the regional banking sector.

On 7 December the Guangdong province government successfully issued China’s first special bond to support small and medium-sized banks, by helping them to “supplement their capital, raise their risk resistance capability and improve their ability to service the real economy.”

The issue raised 10 billion yuan and was 16.16 times oversubscribed. The bonds have a term of 10 years and a coupon rate of 3.52%.

Funds raised from the Guangdong issue will be used to support the capital supplementation needs of four regional lenders including:

  • Yunan Rural Credit Society (郁南农信社) (4 billion yuan);
  • Puning Rural Commercial Bank (普宁农商行) (3.7 billion yuan);
  • Jiedong Rural Commercial Bank (揭东农商行) (1.4 billion yuan);
  • Luoding Rural Commercial Bank (罗定农商行) (900 million yuan).

The move comes following the unveiling of a special bond issuance plan for small and medium-sized banks by the Chinese government on 1 December.

Analysts say that the proceeds from the special bond issues will mainly be used to supplement the core tier-1 capital of banks.

Other banks that have applied for inclusion in special bond capital supplementation plans include Bank of Wenzhou (温州银行), Guangxi Beibuwan Bank (广西北部湾银行), Bank of Wuhai (乌海银行) and Bank of Inner Mongolia (内蒙古银行).

Other provinces that are on track to issue special bonds to support small and medium-sized banks before the end of 2020 include Shanxi, Shaanxi and Zhejiang.

Smaller regional lenders have been a keen risk concern for China since 2019, which saw a string of major incidents involving local banks including Beijing’s forcible acquisition of Inner Mongolia’s beleaguered Baoshang Bank in May of that year.

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