(Yicai Global) May 10 -- China's exchangeable bond market has surged this year with a rise of private placements, prompted by preferential policies and stock market rebounds.
Some 15 out of 18 exchangeable bonds are not listed on a public exchange, making up over one-half of the total tally of CNY50.1 billion (USD7.3 billion) as of yesterday, according to Chinese financial information provider Wind. This year's total is 8 percent more than that of last year.
Exchangeable bonds differ from others in ways that the holder may swap the debt instrument for common stock in a specified third-party company. Private placements of these securities are usually limited to a certain group of buyers.
Private exchangeable bonds have higher risks of defaulting and they are less liquid than public ones, market insiders told Yicai Global, adding that investors must exercise caution. These securities, in particular, are traded on Chinese bourses' fixed-income platforms that are not accessible to the public.
The rise of private placements in the market results from adjustments in monetary policies in the second half of last year and the recovery of China's mainland stock markets since the beginning of this year, Liu Zhijia, investment manager of Muxiao Investment Management, told Yicai Global. Exchangeable bonds also pose advantages over other tools for listed firms to raise money, Liu added.
Editor: Emmi Laine