China is restricting bond sales by highly indebted companies as authorities seek to limit default risks.
According to the National Development and Reform Commission, bond sales by companies with liability-to-asset ratios higher than 90 percent and that have a “relatively high” risk of not being able to repay debt will not be approved.
The NDRC also said that companies that have sold bonds are forbidden from guaranteeing other companies’ debts. The agency also called for credit rating companies not to give artificially high ratings.
China has sought to expand its bond market to wean companies off a dependence on bank loans and to give smaller companies more fundraising options by allowing them to sell debt. That growth in China’s bond market, where no company has yet defaulted on a publicly-traded debt, has spurred concern that some issuers may have difficulty repaying borrowings.
The agency also called for credit rating companies not to give artificially high ratings.