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China's direct financing volume halved in May

By Ding Qi (chinadaily.com.cn)
Updated: 2009-06-02 17:15

China's direct financing market cooled down last month after being affected by less debentures issuance, but analysts expect another boom in the coming months with the restart of IPOs, Shanghai Securities News reported on Tuesday.

Statistics quoted by the newspaper show domestic entities raised 99.51 billion yuan ($14.59 billion) via direct financing in May, 49.4 percent down over the previous month. This was the first time since February that the figure was less than 100 billion yuan.

Related readings:  Direct financing move to strengthen market  Finance: Direct financing move to strengthen market  Long-term financing market needs development - official

Broken down, 11.33 billion yuan was raised via equity financing, or financing by selling stocks, while 88.18 billion yuan was via debt financing by selling bonds, bills, or notes.

The falling supply of debentures such as medium-term notes and short-term financing bills were seen as the major reason behind the cooling direct financing market, the report said.

In May, the two financial vehicles helped to raise 43.8 billion yuan and 10.5 billion yuan in the market, respectively, but slumped by 62.7 percent and 47.2 percent compared with April figures.

Medium-term notes are debt notes that usually mature in 5–10 years. They have gained increasing popularity among domestic companies after the regulator resumed their issuance last October. The notes accounted for more than half of the total direct financing amount in March and April this year.

However, as many big names such as State Grid and COSCO have finished their note issuance in earlier months, it's normal that the total amount began falling in May, the newspaper quoted analysts as saying.

In terms of equity financing, six domestic listed companies raised 11.33 billion yuan via additional share placement in May, down nearly 50 percent from a month before. However, experts said the restart of IPOs in the A-share markets in the near future will introduce more funds into the direct financing pool.

China's securities regulator suspended approvals of all new stock issuance last September as the benchmark stock index had plunged 63.9 percent from its peak in October 2007.

With the market recovery this year and mounting financing needs from domestic companies, the regulator released draft guidelines for listing reforms for public feedback in May and planned to resume new stock offerings once the revision is completed.