On March 17, the first corporate bond for swap was successfully launched on the SZSE market, which further eased the financing difficulties faced by entities under the current special situation and enriched the risk management toolkit of the bond market. It is also a useful exploration on the long-term credit risk prevention and control mechanism in the market-oriented and rule-of-law-based context.
Bond swap is a relatively mature debt management tool overseas. While highlighting the issuer’s repayment obligation, it protects investors’ legitimate rights and interests based on the principles of fairness, transparency and voluntary consultation, providing a new way to effectively resolve the financial distress faced by investors and the issuer. Specifically, the issuer makes a bond swap offer to all bondholders, while investors can choose whether to accept the offer or not based on their own demands and the evaluation of the issuer’s risks, which not only respects investors’ choice but can also improve the execution efficiency of risk mitigation measures on corporate bond redemption.
Huachangda Intelligent Equipment Group Co., Ltd. (“Huachangda”), the first company to pilot the bond swap business, released an announcement saying that, located in Hubei, the hardest-hit by the COVID-19 pandemic, the company’s normal production and operation have been severely affected; to better reduce the significant impact brought about by the pandemic, defuse potential corporate bond redemption risk in advance and effectively protect investors’ rights and interests, Huachangda plans to make an offer to original bondholders to swap corporate bonds in a non-cash way for “2017 Corporate Bonds of Huachangda Intelligent Equipment Group Co., Ltd. (1st Tranche)”. The maturity of the corporate bonds in the swap is 1 year, and the coupon rate is 8.5%. The original bonds are swapped at par. The swap is targeted at all holders of the underlying bonds, and the date of the offer is 18 March 2020. Shenzhen HTI Financing Guarantee Co., Ltd. provides joint and several guarantee for the bond swap, and the issuer still takes credit responsibility.
Recently, due to the impact of the COVID-19 pandemic plus relevant factors, some issuers of bonds (including put-back bonds) due for payment are faced with the realistic problem that their original capital allocation plans were disrupted. To truly give play to the function and role of the capital market in supporting the pandemic prevention and control and the work and production resumption, SZSE has, with adherence to the fundamental market-oriented, rule-of-law-based direction, actively explored effective means to forestall and defuse bond market risks. In the successful launch of the corporate bond swap business, on the one hand, SZSE has fully drawn from international experiences on bond swap and given play to the strengths of bond swap in fairness and flexibility; and on the other hand, based on the pandemic situation, the characteristics of the domestic market and issuers’ special situations, SZSE has formulated convenient and efficient operating procedures for bond swap business, coordinated relevant intermediaries and promoted timely implementation of the plan, which has guaranteed the timeliness requirement of the bond swap business is met.
Facing a complex, ever-changing market environment and the urgent needs of corporate entities, SZSE has faithfully followed the arrangements of the CSRC on relevant work, successively launched the risk prevention and control or disposal mechanisms and measures such as the mechanism to adjust the two-way trading mode to one-way trading for mutual bonds, the specific bond transfer service mechanism, the put-back revocation and put-back & resale and bond repurchase, and effectively fulfilled its basic duties in forestalling and defusing financial risks and supporting the real economy. Next, SZSE will continue to try its best to guarantee the rights of the investing entities, continue to urge enterprises to defuse and address bond redemption risks in an orderly manner, resolutely win the battle against major financial risks, and support, with practical actions, enterprises in containing the pandemic and in work resumption.
