3 kinds of enterprises to exempt from review in issuing bonds

The capital market reform is quietly shifting from stock market to bond market now.

The 21st Century Business Herald got exclusive news from several fixed income securities traders on Oct. 13 that the regulators recently had issued relevant documents on promoting reform on enterprise bond market and proposed to improve enterprise bond’s declaration and review, sort management, fund utilizing, information disclosure, responsibility of intermediary, supervision during and after the trading process and construction of credit system.

Stuff engaged in fixed-income products from one securities company in Beijing disclosed that based on the new requirements, declaration and review schedule and declaration materials of enterprise bond will be quickened and simplified. Moreover, when issuing bonds for financing, enterprises with excellent credit which meet high rating or have full-amount and valid assets for pledge guarantee are expected to be exempt from recheck by the National Development and Reform Commission (NDRC).

In addition, some innovative enterprise bonds such as combination of bonds and loans and construction of urban parking lots can be directly submitted to the NDRC for approval. 

Industry insiders believe that this system benefit for the enterprise bond may be associated with declined scale in enterprise bond issuing since the beginning of this year. Meanwhile, acceleration in issuing and review efficiency will speed up the issuing of enterprise bond, which will provide more supplies to the bond market and curb the current shortage in asset of financial institutions to some extent.

3 kinds of enterprises to exempt from review in issuing bonds

 “According to the stipulation, local enterprises can directly submit the  documents of enterprise bond issueing to the provincial NDRC and the latter should forward it to the NDRC in five working days.” One industry insider who has learnt the above-mentioned document pointed out that “at the same time, they will be no longer required to provide some pre-review opinions of the provincial NDRC. Instead, they are asked to offer certification materials directly associated with bonds and debt payment.”

The certification materials include the issuers’ land use right, mining right and right of charge, etc. The document also demands the issuers to publicize relevant materials, which will be written in credit record, and credit investigation institutions will issue credit report. During the review process, the NDRC will entrust the third-party institution to evaluate the materials’ completeness and compliance.
It is learnt that there are three conditions for the exemption, including that “the credit rating of the issuers’ entities or bonds are rated at AAA level”, “the guarantee companies with good credit status (namely, their credit rating not lower than AA+ and above level) provide unconditional and irrevocable warranty”, and “using valid assets for pledge and the facility rating is over AA+ level”.

In the opinion of industry insiders, this stipulation will step up the review efficiency of over half of the enterprise bond projects. According to statistics from iFinD of Hithink RoyalFlush Information Network Co., Ltd., as of Oct. 13, among the projects which have been issued and are to be listed, there are as many as 86 enterprise bonds with facility rating AA+ and above level, accounting for 65.65 percent of the total to-be-listed enterprise bonds.

It is noticeable that three is one attached condition for the exemption that “the bonds should be only issued to and traded by institutional investors”.

The enterprise bond has been staying in the interbank market and exchanges for a long time before. Analysts think that this condition may direct more enterprise bond supplies to the interbank bond market consisting of financial institutions.
 “This is different from the public placement bond issued to qualified investors. The latter can be issued to natural persons with an investment threshold of three million yuan, but this kind of enterprise bond exempt from review is actually designated for institutional market only.” A fixed-income product researcher from one securities company related Central Huijin Investment Ltd. holds the idea that “it is likely to lead more enterprise bonds to the interbank market”.

Enterprise bond’s scale likely to expand

Bond business insiders believed that enterprise bonds are likely to see an expansion in detailed bond types, increment scale, and stock scale, after the new measures are implemented.

According to the securities company mentioned above, issuing and reviewing procedures for enterprise bonds and innovative types in credit demonstration cities are likely to simplify based on the document spirit, which are different from the procedures for the said bonds with good credit status. During the procedure, the step to submit enterprise bonds and innovative bonds to provincial Development and Reform Commissions could be simplified as recording.

It is learnt by that innovative bonds cover combination of bonds and loans, revenue bonds, sustainable bonds and various specialized bonds for urban parking lot construction, underground urban comprehensive pipe gallery construction, pension industry and strategic emerging industry. 

In fact, both issuing scale of enterprise bonds and their proportion in bond market decrease in 2015 when compared to last year. 

The iFinD data shows that only 594 enterprise bonds were issued in 2014, with a total amount of 846,198 million yuan; and the issuing scale has been only 337,502 million yuan since the beginning of 2015, with their proportion in all issued bonds straightly dropped to 2.18 percent from 7.13 percent of last year.

A staff of fixed income department under the mentioned securities company said: “Issuing scale of enterprise bonds straightly dropped when compared to last year, and over-rapid issuing will indeed cause problems. But plummet in issuing scale may not be good for the real economy. It is just the right time to accelerate reviewing efficiency for enterprise bonds to enhance their marketization.”

In addition, accelerated issuing and reviewing efficiency of enterprise bonds is also likely to ease insufficiency of asset side for current fixed income market.