China rolls out legal game changer for corporate-debt market

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Regulators are moving to make debt workouts transparent and orderly. FMTNews

BEIJING: Even as they battle to limit the impact of the deadly coronavirus, Chinese regulators are pressing ahead with key reforms aimed at building global investor confidence in the country’s capital markets — and, ultimately, a more equitable distribution of capital.

In overseas markets, trustees are a technical, but crucial part of machinery between investors and debtors — notifying bondholders when an issuer fails to make good on payments, and moving to file lawsuits. Embracing the concept of trustees is the next step in the evolution of China’s US$4.5 trillion corporate-bond market.

In December, the National Association of Financial Market Institutional Investors, which oversees the larger of China’s two main bond markets, laid out guidelines separating out the role of a trustee versus an underwriter. Trustees can represent all or part of the bondholders, and file or participate in the civil litigation or liquidation procedures, the new rules specify.

For their part, policy makers have reinforced that they are set on implementing reforms, even while rolling out support measures to cushion the blow to China’s economy from the coronavirus.

 

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