By Wang Lan (China Daily)
Updated: 2007-09-20 10:11

Having received approval from the securities regulator, China Yangtze Power, which owns and operates the power plant of the 160-billion-yuan (US$21.3 billion) Three Gorges Dam Project, is likely to be the first enterprise on the mainland to launch corporate bonds under new rules introduced in August.

Market sources expect that China Yangtze will issue its first batch of five- or 10-year bonds, amounting to 4 billion yuan, as early as this month. The bonds are expected to carry a coupon rate of around 6.2 percent. At the non-discounted issue price, the yield of the proposed China Yangtze bonds would be about 170 basis points above that of government bonds, investment analysts said.

The current yield of government bonds with 10-year maturity is 4.5 percent, while those of five-year maturity is 4.1 percent.

As the first corporate debt issue, the proposed China Yangtze bonds will need to carry a higher coupon rate in order to entice institutional investors like major insurance companies and fund management firms, analysts said.

The proposed bond issue was made under the China Securities Regulatory Commission's (CSRC) new rules, which allow publicly traded companies listed in domestic or overseas markets to issue corporate bonds on a trial basis as part of the government's efforts to expand China's fixed-income securities market.

Before the rule change, the National Development and Reform Commission approved only a handful of State-owned enterprises to make the bond issue.

But since the CSRC's new rule was announced, several listed companies, including major property developers like Vanke and Gemdale Co, have announced their own bond-issue plans.

In a statement to the Shanghai Stock Exchange in August, Yangtze Power said it plans to raise a total of 8 billion yuan in tranches by issuing bonds with maturity of 5 or 10 years. The power company expects the process will be completed within two years.

According to the statement, Yangtze Power will apply the proceeds to loan repayment as it increases operating funds.

Bond experts and analysts said the launch of corporate bonds will allow more domestic companies to gain access to long-term capital markets.

"The introduction of corporate bonds helps increase opportunities and options for companies to make direct financing, which is of significance to the development of companies," said Huang Dong, an analyst at Orient Securities.

"The launch of corporate bonds would provide a much wider choice of fixed-income instruments to institutional investors," he added.

Gong Yangshu, dean of the securities and futures department at Shanghai University of Finance and Economy, said: "A well-established bond market calls for the participation of corporate bonds with different credit ratings to better suit investors' requirements."

Li Xin, an analyst at Guotai Junan Securities, said: "More companies should be encouraged to sell bonds to reduce their reliance on bank loans and seek longer-term financing channels."