Business Maverick

Business Maverick

China regulator steps up probes of bond underwriting practices

China regulator steps up probes of bond underwriting practices
A man exercises alongside buildings in the central business district of Beijing, China, 11 May 2023. (Photo: EPA-EFE/MARK R. CRISTINO)

China’s credit markets are closing out the week trying to digest the implications of new probes that a key regulator announced in recent days into bond underwriting at several major banks. 

The National Association of Financial Market Institutional Investors, an entity governed by China’s central bank that oversees interbank bond sales, said in a statement late on Thursday that it had launched a so-called self-discipline probe into China Construction Bank Corp., for alleged violations in underwriting services. 

That came after similar moves earlier this week in the world’s second biggest note market. NAFMII said on Tuesday it was probing the Export-Import Bank of China for alleged violations in financial bond issuance, and was also looking into alleged violations in debt arranging at China Minsheng Bank Corp. Further details of the allegations weren’t specified in the statements.

Chinese authorities have for years sought to improve the oversight of the debt market by clamping down on practices that unfairly skew prices, inflate demand and mislead investors. Greater governance may help boost the confidence of overseas investors, who account for less than 1% of the nation’s $2.9-trillion interbank nonfinancial corporate-bond market.

Also this week, NAFMII said that four other banks had been asked to carry out so-called rectifications after violations in the interbank bond market. Bank of Qingdao Co., Bank of Dalian Co., Jiangxi Bank Co. and Bank of Zhengzhou Co. had provided convenient conditions for some institutions to illegally hold bonds on behalf of others, or conducted related transactions in October 2021, according to NAFMII. 

People familiar with the matter said last month that NAFMII was asking underwriters to review problematic practices in the primary corporate-debt market. Issues under scrutiny include the large price gaps that sometimes exist between the primary and secondary markets, as well as the practice of charging underwriting fees below market rates, they said. 

NAFMII said in April that Industrial and Commercial Bank of China Ltd., the country’s largest lender, was being probed. BM/DM

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