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The State Council has recently approved the issuance of RMB200 billion bonds by local governments, and the Ministry of Finance (MOF) will serve as the issuance agent. In its "Notice of Issuance, Listing of 2009 Municipal Bonds" to the member units on March 24 as a supportive measure for the successful launch of the 2009 municipal bonds, the Shanghai Stock Exchange (SSE) required the members to do a good job in the issuance and listing of municipal bonds according to the requirements of the Notice.
The issuance of the 2009 municipal bonds, approved by the State Council, is the issuance of the floating book-entry bonds in 2009, with provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan as the issuance and repayment subjects, and with the MOF as the agent for issuance, repayment of principal and interest as well as payment of issuance fees. The municipal bonds will be titled with the names of the local governments as the issuers, with a term of 3 years. The interest will be paid yearly, with the interest rate to be decided by market bidding. The issuance objects are various investors (including individual investors) who open bond accounts at China Government Securities Depository Trust & Clearing Co. Ltd. and those who open stock and fund accounts at China Securities Depository and Clearing Corp. Ltd. (SD&C).
According to the SSE's Notice, the issuance of the 2009 municipal bonds will be in line with the current issuance method of the book-entry treasury bonds, i.e. to be distributed through on-floor listing and off-floor signing of distribution contracts. Distribution through listing refers to the listing and sales of bonds on the SSE's trading market by underwriters, and all member units will subscribe through trading seats for proprietary business or as agent of investors. Distribution through agreements refers to the subscription through the signing of distribution agreements between underwriters and other institutions or individual investors. Besides, underwriters shall, at their own discretion, decide the distribution prices according to the market situation, and members of the underwriting group shall not distribute among themselves.
The Notice prescribes that, for proprietary subscription, member units shall use their proprietary stock account; for commission subscription, they shall use the clients' securities accounts. The MOF requires that member units should not subscribe by opening "secondary securities accounts" for investors or other ways. The code range of the underwriter's application for distribution and subscription of the 2009 municipal bonds is between 751900 and 751979, and the application is counted by lots (1 lot equals to the face value of RMB1,000).
According to the Notice, the commissioning and transaction of the 2009 municipal bonds to be subscribed through listing distribution shall be in line with the SSE's business rules, and relevant settlement shall be handled according to the business rules of SD&C. No commission charge is needed for investors of the 2009 municipal bonds, and the commission charge accrued from member units' subscription shall be paid by listing underwriters according to the agreed proportion. For underwriters that distribute bonds by signing agreements, they shall submit the distribution applications to the exchange before the distribution completes so that the exchange can handle the registration of the creditor's rights in time. The exchange will transfer the creditor's rights conclusively to the distribution securities accounts after the distribution completes.
The Notice also mentioned that the 2009 municipal bonds will be simultaneously listed with the same code on the SSE's comprehensive electronic platform of fixed income securities and the auction trading system. The transaction methods include spot trading and collateralized repo which is, however, not allowed during the distribution period. The code segment for bond spot trading is "130***" and the in-and-out storage code segment for repo is "106***" (with the last 3 digits corresponding to the counterparts of the spot trading). The bond spot trading and repo will be handled through securities accounts, with the charging standard same as that of the treasury bonds.
