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UPDATE 1-Chinese regulator curbs asset transfers to protect bondholders

(Adds more details, background; tweaks headline)

SHANGHAI, Jan 29 (Reuters) - China’s interbank bond market regulator will restrict moves by bond issuers to transfer assets for free, it said on Friday, in an apparent effort to protect bondholders in the aftermath of a spurt of defaults.

In a statement, the National Association of Financial Market Institutional Investors (NAFMII) told bond issuers’ controlling shareholders not to dodge debt obligations through asset transfer or transactions with related parties.

The curbs come after several top-rated state-owned companies, including Huachen Automotive Group Holdings Co and Yongcheng Coal & Electricity Holding Group Co, defaulted toward the end of 2020, sending shockwaves across China’s bond market.

Just ahead of the delinquency, Huachen transferred its prize 30% stake in Hong Kong-listed Brilliance China Automotive Holdings Ltd to a subsidiary, while Yongcheng Coal moved its stake in Zhongyuan Bank to two government subsidiaries.

NAFMII said on Friday that if a company conducts a free transfer of assets, it must make timely disclosure to bondholders.

In addition, if a company plans a transfer that reduces its net assets by 10% or more, or result in change of control, bondholder meetings must be held.

Following the recent spurt of defaults, Chinese regulators have vowed to curb misconduct, reprimanding underwriters and rating agencies, while enhancing disclosure rules.

On Thursday, China’s securities regulator said it would “optimise a market-based mechanism” to resolve bond defaults. (Reporting by Samuel Shen and Andrew Galbraith; Editing by Clarence Fernandez and Richard Pullin)

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