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The amount of bonds underwritten by brokers in China has reached record levels since the beginning of this year, up about a third on 2019. And at the same time, brokerages have also raised over 700 billion yuan for themselves through the issuance of various bonds.

China’s top brokerages have formed the “100 Billion Yuan Club” and seen huge increases because of favourable government policies, according to the China Securities Times. The impact of the coronavirus pandemic has also played a role, of course, with the number of corporate bonds issued shooting up 46% year-on-year.

The Chinese bond market has  a stock size of more than 90 trillion yuan and now ranks second in the world. According to Wind Data statistics, the scale of securities firms’ bond underwriting reached 3.83 trillion yuan in the first five months of this year, a 33% year-on-year increase.

A brokerage investment bank commented that compared with banks and trusts, the performance of securities brokers in the bond underwriting business this year is remarkable, and has increased their overall performance income this year, thanks to favourable state policies. And the bond business is expected to further boost securities firms’ operating performance as the year goes on.

At the end of May, the Shanghai and Shenzhen Stock Exchange issued a notice on matters “related to the Pilot Issue of Public Short-Term Corporate Bonds”, which allows eligible issuers to make public offerings to professional investors within one year during the pilot period of short-term corporate bonds.

Many industry analysts believe the notice has broadened corporate financing channels or may have the effect of boosting brokerage performances.

However, there are also some securities firms that “stepped on  mines” by underwriting default debts and undertook a “price war” to gain market share during the underwriting process. Regulatory authorities have, in response, imposed penalties to severely crack down on price wars and promote sound development of the bond business.

The vice-president of the People’s Bank of China, Pan Gongsheng, said that since the coronavirus outbreak, the central bank has formulated and undertaken a number of policy measures. These were comprehensive and achieved obvious results. Among them was the issuance of nearly 400 special bonds for epidemic prevention and control, which raised 400 billion yuan. In the first four months of this year, corporate credit bonds raised a further 4.6 trillion yuan, an increase of 46% year-on-year. And private enterprises have launched bond issues totalling 270 billion yuan. So, the amount of issuance has hit a new high over recent years.

Foreign institutional investors

Besides local players using underwriting services, China is also trying to attract foreign investors to the market such as BlackRock. The latest data released by China Central Clearing Corporation in May shows that the amount of bonds held by foreign institutional investors has increased significantly. Total bonds held by foreign institutions in May was 21,130.72 billion yuan, an increase of nearly 112 billion yuan from April and a year-on-year rise of 31%. It was the 18th consecutive month that foreign institutional investors have increased their holdings of Chinese bonds.

Zhang Jinqiu, deputy governor of HSBC (China) Co Ltd and co-director of the Global Capital Markets Department, told the Shanghai Securities Journal that while foreign investment is increasing in Chinese bonds, the investment categories being traded by foreign institutional investors is also expanding.

“We saw a new trend. After investing in government bonds and policy financial bonds, credit bonds began to enter the horizon of foreign investors. Credit ratings have therefore become an important decision-making reference tool for foreign investors to enter the Chinese market.”

CITIC Securities led this year’s list of top brokerage bond underwriters, and the top 10 brokers accounted for 60% of the total amount of bond underwriting – a slight decline from the same period last year. Industry analysts believe that although the share of bond underwriting of the top 10 brokerages has declined, the gap is still relatively large compared with the bond underwriting share of other brokerages.

Nine join the club

Meanwhile, nine brokers stepped into China’s “100 Billion Yuan Club” of bond underwriters, which Securities Times puts down to the The ‘Matthew effect‘ of accumulated advantage.

According to Wind Information data, as of June 3, some 86 brokers had participated in the bond underwriting business in China this year. The total amount of bond underwriting has reached 3.83 trillion yuan, which is an increase of 33% compared with the 2.88 trillion yuan of bond underwriting in the same period last year. The average bond underwriting amounted to 238 million yuan.

But the bond underwriting value of the 33 securities firms ranked at the bottom was less than 10 billion yuan.

However, it should also be noted that although the total scale of bond underwriting of the top 10 brokers has increased significantly, the amount of underwriting has declined slightly. Their total amount of bonds underwritten was 2.33 trillion yuan, accounting for 60.78% of the market share, which is 3.8 percentage points lower than the same period last year. The remaining 76 brokerages shared the other 39.22% of the bond market.

CITIC Securities temporarily topped the list with a bond underwriting tally of 485.38 billion yuan, having underwritten 1,230 bonds in total, which was 12.69% of the market. CITIC Construction Investment was second, with a bond underwriting total of 480.82 billion yuan, from 1,164 bonds. Their market share was 12.57%.

Different types of bonds

For different types of bonds, the scale of brokerage underwriting also varies significantly.

Among them, brokerages have the largest underwriting of corporate bonds, non-policy financial bonds, local government bonds, and ABS (asset securitisation) bonds with scales of 1.37 trillion yuan, 767.83 billion yuan, 618.52 billion yuan, and 520.64 billion yuan – accounting for 35.77%, 20.07%, 16.17% and 13.6% of the total scale of bond underwriting, respectively. Compared with the same period last year, the underwriting scale of these four types of bonds saw a significant increase.

In the field of corporate bonds, CITIC Securities, CITIC Construction Investment and Guotai Junan Securities ranked the top three in terms of sales volume. The underwriting scale reached 180.64 billion yuan, 107.47 billion yuan and 64.826 billion yuan, respectively. 

In the field of non-policy financial bonds, the top three were CITIC Securities, CITIC Construction Investment and CICC, with underwriting scales of 99.80 billion yuan, 91.04 billion yuan and 73.3 billion yuan, respectively.

In the area of local government bonds, CITIC Securities led the way with an underwriting scale of 110.83 billion yuan, followed by CITIC Construction Investment and Huatai Securities. In the ABS field, the top three were CITIC Securities, Ping An Securities and CITIC Construction Investment.

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