The Shenzhen Stock Exchange recently promulgated the “Pilot Measures for the Issuance of Private Placement Bonds by Small and Medium-sized Enterprises” (the “Pilot Measures”), which is an official kickoff for the pilot program for issuing privately raised corporate bonds. The pilot program is in line with the requirement of “finance serving real economy” raised in the Central Financial Work Session and the work deployment of “broaden financing channels for small and micro-sized enterprises” raised by the State Council. It helps to enhance the ability of serving real economy by the capital market and optimize the structure of the capital market.
As specified in the Pilot Measures, private placement bonds are corporate bonds non-publicly issued by micro, small and medium-sized non-listed enterprises, with return rate not exceeding 3 times of coterminous benchmark debt interest rate and repayment periods not less than one year. SME private placement bonds are issued on a record-filing basis. The stock exchanges will accomplish the filing procedures within 10 business days upon receiving filing materials, and will provide transfer services for private bonds on the SZSE Integrated Agreement Trading Platform.
Due to the lack of threshold requirements on issuers’ net assets and profit-making ability, SME private placement bonds are fully market-oriented variety of credit bonds. In order to control risk, the Pilot Measures call for stringent appropriateness management to investors who participate in the pilot program at an early stage. Risk acknowledgements should be signed by qualified investors. In addition to the existing investors protection measures such as bond trustees and bondholders’ meetings, the Pilot Measures also require issuers to open special accounts for debt repayment funds, and formulate rules and regulations in respect of fund collection and management in the event of dividends distribution or bonds maturity.
The launch of SME private placement bonds narrows the gap between direct financing and micro, small and medium-sized enterprises, said by a principal of the SZSE, it is a new path to solve financing problems shouldered on cash-strapped SMEs, and it will also inject new life to the innovation of the capital market. Currently, relevant business and technical preparation are being made by the SZSE, the Securities Association of China and the China Securities Depository and Clearing Corporation Limited. It is expected that the first varieties of SME private placement bonds will be launched in the middle of June. The high-yield and high-risk SME private placement bonds are limited to qualified investors with certain risk identification ability and risk tolerance and those who could make independent investment judgments at their own risk based on the bond issuers’ information disclosure.
It is reported that the “Guidance for the Pilot Program of SME Private Placement Bonds” was promulgated by the SZSE on the same day. The Guidance elaborates on framework contents in the Pilot Measures, specifies the content and format requirements for documents including filing and registration forms, prospectuses and risk acknowledgements for qualified investors. Moreover, the Guidance also clarifies the channels and procedures in respect of filing, transfer services and information disclosure applications. Electronic processing will be applied to the whole process of filing applications. Securities companies could handle the filings via the SZSE Members’ Business Zone and follow up real-time progress. The whole process of record-filing is open and transparent.
