China’s regional authorities have issued a copious volume of special bonds for the purpose of raising funds to shore up the capital standing of small and medium-sized banks (SMB’s) within their jurisdictions.
On 25 December Guangxi Zhuang Autonomous Region and Zhejiang province issued 11.8 billion yuan and 5 billion yuan respectively in special local government bonds to supplement the capital of SMB’s.
The proceeds from the Guangxi issue will be used to provide capital to 21 SMB’s, including rural and municipal commercial lender, while all the funds raised by the Zhejiang issue will be used to support Bank of Wenzhou (温州银行)
The Christmas Day issues follow similar moves by Guangdong and Shanxi province earlier in December, and brings the total amount of funds raised via special bonds for regional SMB’s to 42.1 billion yuan (approx. USD$6.44 billion).
On 7 December Guangdong province issued 10 billion yuan in special bonds, while on 23 December Shanxi province issued 15.3 billion yuan in the instruments, the proceeds of which were used to channel capital to four rural village and five municipal commercial banks.
Shanxi, Zhejiang and Guangdong have used “indirect stock investment” to channel the proceeds of special bond issues to SMB’s, while Guangxi has instead employed share conversion agreements.
Shanxi, Zhejiang and Guangdong province have also indicated that any equity obtained via special bond issues will be transferred via the market upon maturation, with the proceeds use to repay capital and interest on the bonds.