Some Chinese firms facing tighter financing conditions have turned to indirectly buying their own bond offerings, Bloomberg reports, helping to raise issuance sizes and push down coupons.
The practice, called structured issuance, involves purchasing bonds through primary buyers to create an image of greater access to capital than what the balance sheet shows.
“The motive of using the structured financing method is to boost market demand for bonds the issuer is selling – and it will benefit future issuance as well,” said Li Chang, an analyst at S&P Global Ratings.
According to Bloomberg, structured issuance picked up late last year as default pressures mounted. The Chinese government waged its anti-leveraging campaign earlier last year, stepping back from its previous commitment of continually funding troubled companies.
China’s bond market, the world’s third largest, is expected to face more problems in 2019. S&P said earlier this week that it forecasts corporate defaults “will continue to increase modestly,” and that debt servicing will become more difficult.