(Yicai Global) Sept. 5 -- An innovative policy recently released by China's National Association of Financial Market Institutional Investors should not be misconstrued as a green-light for county-level financial vehicles to issue bonds, an informed source told Yicai Global.
On Sept. 2, the NAFMII convened a meeting of lead underwriters where it stated, among other things, that certain county-level enterprises with a relatively strong economic foundation and an awareness of the importance of market-oriented economic development will be supported to register and issue debt financing instruments.
The main purpose of the lead underwriters' meeting was to tighten regulation over information disclosure, said the source. The NAFMII has always been very cautious about bond issuance by county-level financing vehicles, and the relaxation in policy is due to two considerations: (i) at present, district and county-level financing vehicles are performing relatively well overall, with limited exposure to risks; (ii) these district and county-level financing vehicles have access to other bond-issuing channels, and it would contradict the state government's call to "boost the real economy through direct financing," if the NAFMII continues to restrict their operations.
The NAFMII has been taking a hardline stance against bond issuance by real estate developers and local financing vehicles, even more so than the China Securities Regulatory Commission and the National Development and Reform Commission. Even if it decides to deregulate bond issuance by district or county-level financing vehicles, it does not mean that bond issuance by these entities will be 'green-lighted, or comprehensively deregulated,' and the market should not misinterpret the policy.
The NAFMII is a self-regulation organization formed voluntarily by participants of the inter-bank bond market, inter-bank lending market, foreign exchange market, commercial paper market and gold market.