CHINA has tightened rules on leverage in the corporate bond market, highlighting authorities’ concern about rising financial risks as defaults spread.

    China Securities Depository and Clearing Corp. (CSDC) has lowered ratios that determine how much investors can borrow to buy new notes using holdings of exchange-traded company notes as collateral, it said in a statement on its website.

    Investors using securities whose bond and issuer ratings are AA can now count 50 percent of the value of those debentures as collateral, according to the statement, which didn’t say what percentage previously applied. The figure had been 70 percent before, and the reduction was the biggest among all ratings, according to Hua Chuang Securities Co.

    “It’s very clear the new rules aim to help cut leverage,” said Hua Chuang analysts led by Qu Qing in a report Saturday. “The regulation will lead to an increase in borrowing costs in the primary market and it will be more difficult for lower-rated issuers to sell bonds.”

    Chinese regulators have sought to cut leverage in the bond market after at least 11 companies reneged on debt obligations so far this year, already exceeding the tally for 2015.

    The outstanding amount of repurchase agreements in China’s interbank market, used by bond traders to amplify their buying power, jumped 21 percent in June to 9.4 trillion yuan (US$1.4 trillion) from May, the highest level this year.

    CSDC has already lowered ratios that determine how much collateral bonds can fetch for most outstanding corporate securities to levels required by the new rules, it said. It hasn’t yet done so for notes sold in the past three months, it said.

    (SD-Agencies)