Chinese securities companies will be allowed to sell corporate bonds to expand their access to capital financing from October 8, said the China Securities Regulatory Commission on Saturday.

The move follows a promise made by Shang Fulin, chairman of the securities regulatory body, to heads of more than 60 of the country's leading brokerage firms in a closed-door meeting in early August in Beijing.

"Through selling bonds, securities firms will be able to improve their financing structure, maintain sustained growth, enhance comprehensive competitiveness and strengthen resistance to risks," said the securities regulator in a statement.

Securities firms selling bonds will be required to have a net asset value of up to 1 billion yuan (US$120.48 million) and to have reported profitability in the previous year.

The amount of the bond sales will be limited to no more than 40 percent of the company's net asset value. The debt, whose maturity can range from one year to five years, can be sold to either public investors or qualified corporate investors whose asset value should be more than 20 million yuan.

China Galaxy Securities Co Ltd, which has the most number of outlets in the country, will reportedly apply for the bond sales soon.

At present, domestic brokers get limited access to financing, and the latest move could not have come sooner as China's 124 securities firms have been hurt by low profit margins due to the bearish stock market.

A report by Industrial Securities Co Ltd showed the industry lost nearly 2.6 billion yuan last year amid a 17-percent drop in the equities market, which has led to shrinking revenues in the stock-broking and investment banking businesses.

Fifty-one out of the country's 124 securities made losses last year.

Analysts believe the permission to sell bonds would provide an incentive to both brokers and, perhaps, revive the sluggish stock market, but they also are doubtful whether investors would respond warmly.

"It will help securities companies pull through the tough time, but investors need to think whether it is reliable to lend money to brokerage houses under such circumstances," said Dai Ming, analyst at Dagong International Credit Rating Co Ltd.

The securities regulator said it is also considering other means to widen the sources of capital for struggling brokers.

(Shanghai Daily September 1, 2003)