CHINA’S two stock exchanges have restricted individual investors with financial assets under 5 million yuan (US$805,300) from buying into risky bonds as of Sept. 1.

    The planned move follows the first Chinese corporate bond default in March. Shenzhen-listed solar equipment maker, Shanghai Chaori Solar Energy Science & Technology Co., failed to pay 89.8 million yuan in interest on a 1-billion-yuan five-year bond sold in 2012.

    “After Chaori’s default, people paid high attention to how to prevent bond credit risks from spilling over to small and medium investors who are vulnerable to risk,” said the Shenzhen Stock Exchange on Tuesday.

    The exchanges will designate the risky bonds with “special treatment (ST)” if they are rated as AA- or below, or they swing to a full-year net losses.

    The Shanghai Stock Exchange also said Tuesday that individual investors must have at least 5 million yuan in financial assets to trade ST bonds.

    The Shanghai exchange said in a statement that new regulations, effective immediately, say bonds issued by companies that operated at a loss the previous year will receive a special “ST” designation, identical to the “special treatment” tag applied to shares in loss-making companies trading on the stock exchange.

    “Recently, the number of bonds listed on the Shanghai Stock Exchange has hit repeated record highs, and credit risks of such bonds have increasingly attracted attention from both the market and regulators,” an exchange representative said in the statement.

    The Shanghai exchange statement also said that company bonds rated AA- or below will also get the ST tag.

    “Demand for AA- rated bonds will significantly decline in lack of support from individual investors, and the institutional investors will have to dump the bonds given liquidity problems,” said Xu Hanfei, an analyst with Guotai Junan Securities. (SD-Agencies)