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MARKETS | Tony Chua, China

China's Central Huijin plans to issue bonds

Fund to sell $7.97bln bonds in its effort to maintain controlling stakes in major domestic banks.

Central Huijin Investment Ltd., the domestic-investment arm of China's sovereign-wealth fund, will sell its first batch of bonds as soon as this month and aims to issue up to 187.5 billion yuan ($27.7 billion) of bonds by 2011 to help maintain its stakes in large state-controlled banks, a person familiar with the situation said Tuesday.

The debt issue comes as Central Huijin faces increasing financing pressure in its efforts to maintain its controlling stakes in major domestic banks, which have been gearing up for share offerings and convertible-bond sales in recent months to boost their capital after a sharp increase in lending last year—the key platform of China's stimulus measures—eroded their capital.

While nominally a huge amount, China's enormous bond market should have no problems digesting it. According to Celent, a financial-services research firm, the bond trading value of China's interbank market was $7.2 trillion last year.

Still, in an unusual twist, with commercial banks dominating bond purchases in China—accounting for 63% in 2009 by Celent's count—a significant portion of the funds raised in the bond issue will likely be from banks in which Huijin is planning to invest.

Central Huijin will sell up to 54 billion yuan ($7.97 billion) of bonds in late August, said the person.

View the full story in the Wall Street Journal.

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