By Wang Lan (China Daily)
Updated: 2007-10-11 18:20

China Yangtze Power bonds debut tomorrow, as investors will likely closely watch the mainland's first corporate bond issue on the Shanghai Stock Exchange. The issue represents a major step forward in the development of China's long-term capital market.

Related readings:  Yangtze Power to offer corporate bonds  Yangtze Power profit jumps 72% on output, bank sale  Yangtze Power wants a stake in Datang Mobile  Yangtze Power to buy Shanghai Electric stake

China Yangtze Power bonds issued 10-year maturities amounting to 4 billion yuan in late September. The coupon rate was set at 5.35 percent, higher than existing equivalent government bonds, with a yield of around 4.5 percent. The company has raised 3.6 billion yuan from institutional investors and 0.4 billion yuan from individual investors so far from bonds.

Insurance companies and social security funds are expected to show the most interest in the bonds, analysts said.

Because the final coupon rate is based on institutional investors' bids several weeks before the trading, analysts do not expect the bond price on the first trading day to deviate much from the issue price of 100 yuan apiece despite the expected increase in bank interest rates.

"The price trend of the bonds will maintain a steady curve on the first trading day," said Nie Wen, an analyst at Industrial Securities.

But some analysts expect low trading activity at the initial stage because this type of corporate debt instrument is not well known amongst the investing public. "Many investors are likely to adopt a wait-and-see attitude, because it is the first issue of its kind on the mainland," said Huang Dong, an analyst at Orient Securities.

Some analysts suggested the rising CPI in the past several months and the expectations that the central bank will further increase interest rates could also quench investor enthusiasm for fixed income securities.

The booming stock market, promising much higher returns than the bond market, also diverts potential investors like fund managers and other institutional investors, analysts say.

"Recently, we have received few inquires about the China Yangtze corporate bonds from investors," said Tian Hongqin, an analyst of the fixed income securities department at China Securities.

These bonds are likely to be traded more actively in the inter-bank market between commercial banks and other qualified participants.

The People's Bank of China recently allowed the trading of corporate bonds in the inter-bank market to increase market liquidity. “The transaction volume would be largely increased after commercial banks begin to trade corporate bond in the inter-bank market," said Nie at Industrial Securities.

Experts believed that the trading in the China Yangtze Power bonds serves as a benchmark for other enterprises that also have plans to raise long-term money. For example, major property developers like Vanke and Gemdale Co have announced their own plans to issue bonds.

"China Yangtze is a good model for other companies in fixing the coupon rate and arranging the bond issue procedures," said Nie at Industrial Securities.