China approves local banks' convertible bonds for boosting capital

BEIJING: China's central bank said on Monday it has approved two local banks to issue convertible bonds to replenish their capital, in a bid to shore up banks and support struggling small firms amid the pandemic.

The two bonds were issued by Zhejiang Chouzhou Commercial Bank and Ninbo Commerce Bank, according to a statement of the People's Bank of China.

Investors will be able to convert debt into stocks if specific risk events arise, a tool created to help the country's undercapitalized smaller banks.

Such bonds carry a specialized option that once a risk event is triggered, investors can convert the bond into equity or stock, the central bank said.

China will allow local governments to use part of the money they raise from special bonds this year to recapitalize some small banks, the cabinet has said.

Financial regulators will further encourage eligible mid- and small-sized banks to issue such bonds to replenish capital, and strengthen capabilities to counter risks, the PBOC said.