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Recently, the 1st SME exchangeable private placement bonds have been filed and issued on Shenzhen Stock Exchange (SZSE). This is another kind of innovative product launched by the Exchange since SME private placement bonds launched last year.
According to Circular on Issues regarding the Pilot SME Exchangeable Private Placement Bonds promulgated by SZSE, SME Exchangeable Private Placement Bonds, privately placed by enterprises that fall into the category of Medium, Small or Micro-small Enterprises defined by Ministry of Industry and Information Technology, can be swapped for shares of public companies according to relevant stipulations within certain period by the bondholders.
The 1st SME private placement bonds have been issued by the third largest shareholder of Beijing Fuxing Xiaocheng Electronic Technology Stock Co., Ltd., a company listed on the ChiNext Board, with the issuing volume being CNY256.5 million, and coupon rate 6.7%. 10 million of Fuxing Xiaocheng’s shares and its fruits have been provided by the issuer for guarantee for the bondholders’ swap for shares and payment of bonds’ maturity and interest. Share swap period will come in 6 months after the completion of the private placement of bonds. The initiate swap price for the underlying shares is CNY25.65 per share. The bondholder can apply for share swap through the trading system of SZSE, with the swapped shares tradable on the next trading day.
According to relevant principal from SZSE, SME exchangeable private placement bonds are the upgraded version of SME private placement bonds, and share the same links with the latter in respect of filing procedure, investors’ appropriateness management and transferring services. SME exchangeable private placement bonds differentiate in the link of bond credibility enhancement, which requires issuers to pledge A-share of companies listed on SZSE held by issuers via the clearing system, so as to enable the bondholders to swap bond for shares of public companies pledged for credibility enhancement during the stipulated swap period. In respect of the specific product clause design, SME exchangeable private placement bonds inherit the market-oriented features of the private placement bonds, i.e. as long as the swap price for the underlying share is not lower than 90% of closing price 1 trading day before the issuing date and 90% of average closing price of the previous 20 trading days, and volume of pledged bonds are no less than bondholders’ exchangeable shares, the specific share swap price and adjustment mechanism thereof, ratio of shares pledged, maintaining guarantee ratio, and additional guarantee mechanism can be entirely subjected to the consultation of the main market bodies.
