THE Shanghai Stock Exchange has warned several securities firms to strengthen risk control in their corporate bond and asset-backed securities (ABS) businesses, two sources with direct knowledge of the matter said yesterday.

    Two sources said that they saw a document from the exchange requesting stronger risk management.

    The exchange also asked securities firms to boost issuance by high quality firms and assess underwriting risks from coal, steel, real estate and other sectors with overcapacity, sources said.

    Corporate bond issuance on the exchange has skyrocketed over the past year as firms have taken advantage of easier issuance regulations and falling yields to issue cheaper debt.

    However, with corporate defaults on the rise and high-rated debt prices at or near multi-year highs, some analysts have warned that credit quality in some portions of the bond market may be deteriorating.

    Moreover, corporate bond financing has taken over from the “shadow banking” sector, the locus for a large portion of China’s existing bad debt problem, as the largest source of non-bank financing in the economy. (SD-Agencies)