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On October 19, the continuous issuance of the 2017 phases IX and XI Yunnan Provincial Government General Bonds is carried out on a trial basis on the Shanghai Stock Exchange (SSE), which marks the successfully continuous issuance of the first kind of local government bonds in China. It is a beneficial attempt of the SSE to positively cooperate with the local finance department for innovating and reforming the local government bonds issuance system according to the requirement of actively exploring to establish the continuous issuance mechanism mentioned in the “Notice of Properly Carrying out the Work of 2017 Local Government Bonds Issuance” (Cai Ku [2017] No. 59 Document) and by implementing the relevant work deployments made by the China Securities Regulatory Commission (CSRC) and the Ministry of Finance of the PRC, which contributes to taking a major step for further improving the liquidity of the local government bonds' secondary market.
The issuance of the phase IX and XI Yunnan Government General Bonds debuted on the SSE on August 10, with the coupon rate of 3.95% and 4.11%, respectively. The continuous issuance sizes are respectively RMB2.35 billion and RMB2.2 billion. The way of tendering of price is adopted for the continuous issuance, with the issuance result as follows: the subscription ratio of the general bonds (phase IX) is 4.39 times, the marginal ratio is 15 times and the bidding price is RMB100.89, with the reference yield up to 3.92%; the subscription ratio of the general bonds (phase XI) is 3.25 times, the marginal ratio is 8 times and the bidding price is RMB101.08, with the reference yield up to 4.07%. Both the reference yields are lower than the coupon rates of the first issuance, which is called issuance at a premium on the basis of net price. According to the tendering, the relevant underwriters actively subscribe for the bonds, which results in a high subscription ratio. Remarkably, the underwriters in the category of securities dealer totally give RMB9.66 billion tendering, 2.12 times the issuance size, which shows the full acknowledgment of all market investors to the first continuous issuance.
Continuous issuance is an additional issuance for listed and traded single-phase bonds, with all the elements remaining unchanged while being compared with the original bonds. After being listed, the continuously issued bonds are combined with the original bonds for trading. Previously, the Treasury Bonds, CDB bonds and other products had carried out trial continuous issuance and established mature modes. In light of the practices, continuous issuance may, on the basis of maintaining a high issuance frequency, decrease the number of bonds and expand the size of a single bond, which could contribute to increasing the turnover of a single bond, decreasing the bond fragments, encouraging the subscription by investors and thus enhancing the bonds' liquidity. Besides, continuous issuance adds no new expiry date, so an issuer may keep less expiry dates under the precondition of a high issuance frequency, form a standard and orderly expiry structure, and thus lower the operational risk of repaying principal and interest. As continuous issuance has the above unique advantages, the Cai Ku [2017] No. 59 Document clearly encouraged the areas featured with large issuance size and high issuance frequency to build a continuous issuance mechanism of local government bonds. The Yunnan local government bonds, for the first trial in the country, selects the SSE as the venue of public issuance for its continuous issuance, which manifests that the authority and the market participants highly acknowledge the SSE-traded local government bonds market and the SSE bonds issuance system. In response to the first pilot of the continuous issuance nationwide, the SSE organized special personnel in advance to study policies, debug systems, and make emergency schemes, so as to guarantee all fundamental supporting elements are in place for the continuous issuance. The successful trial of the continuous issuance not only marks another fruit upon the cooperation between the SSE and the local finance department, but also witnesses a new milestone for the construction of the SSE local government bonds market, which is of great significance and profound influence for further perfecting the marketized issuance system of local government bonds.
Next, the SSE will continue to implement the work requirements of the CSRC and the Ministry of Finance, positively popularize the experience in the continuous issuance with Yunnan Finance Department, and support and coordinate the continuous issuance work in other areas. Moreover, it will systematically propel the innovation of products and mechanisms of local government bonds, diversify the investors, take an array of measures to improve the liquidity of the local government bonds' secondary market, in a bid to fuel the sound development of the local government bonds market.
