Easy Financing Tong

Introduction of Debt Financing Instrument

Debt Financing Instrument is issued in inter-bank bond market by legally incorporated non-financial enterprises. Its principal and interests have to be repaid within certain period. As a direct financing instrument and an active debt, it provids an option for enterprises to raise funds from inter-bank bond market. Its buyers are members of inter-bank bond market, including banks, securities companies, fund companies, trust companies,other financial institutions and non-financial insitutions. Debt financing instrument will normally circulate starting from the second working day after completion of its issuance.

Debt Financing Instrument includes commercial paper (CP), Medium Term Note (MTN) and Small and Medium-sized Enterprise Collective Notes (SMECN).

Commercial paper is a kind of debt financing instrument issued by legally incorporated non-financial enterprises in inter-bank bond market. Maturities on commercial paper range no longer than 1 year. Its maturity can be 3 months, 6 months, 9 months or 1 year.

Medium Term Note is a kind of debt financing instrument issued by legally incorporated non-financial enterprises by stages under certain issue plans. It matures in 2-10 years.

Small and Medium-sized Enterprise Collective Notes means a debt financing instrument jointly issued by 2-10 legally incorporated small and medium-sized enterprises in inter-bank bond market under unified design, name, credit enhancement as well as unified issue mode and registration mode. The instrument matures within certain period.

Characters of Debt Financing Instruments

1.        The issuers are first-class companies with sound credit status.

2.         Debt financing instruments enjoy high liquidity. Debt financing instrument can normally circulate starting from the second working day after completion of its issuance.

3.        Debt financing instrument has high transparency. Regulators have strict requirements regarding information disclosure and credit rating amid issuance process of debt instrument as well as payment of principals and interests.

4.        Diversified Risks. Many investors invested in debt financing instruments, which diversified risks responsibilities. Meanwhile, as debt financing instrument can circulate in secondary market soon, change in issuers’ credit status will be reflected in such instruments’ prices on secondary market as well as its trade between different investors. There is enough time and investors to alleviate potential risks facing single investor.

5.        Debt financing instrument is well-received by investors. The yield of debt-financing instrument is higher than that of central bank notes as well as other financial instrument circulating on inter-bank bond market. There is a large demand for it.

Benefits of Debt Financing Instrument (For enterprises)

1.        Debt financing instrument, as a direct-financing method, widened financing channels for enterprises. It greatly alleviated policy and systematic risks arising from single financing channel.

2.        Debt financing instrument is subject to certain issue size. The registered issue size will remain valid in 2 years. Within the validity period, enterprises can issue debt financing instrument by stages according to their capital status.

3.        Funds raised through debt financing instrument can be used for various purposes. It can be used as working capital of enterprises (short-term, medium-term), or be used to repay bank loans and carry out business projects.

4.        Debt financing instrument has low financing costs. Its issue price and interest rate are decided by issuers and underwriters based on inter-bank bond market conditions. It can lower financial costs of enterprises and improve operational efficiency. For more information, please read the following table:

Type of Instrument

Rating and Maturity

AAA

AA+

AA

Commercial Paper

1 Year

2.73

2.92

3.17

Medium Term Note

3 Years

3.87

4.23

4.59

5 Years

4.48

4.93

5.29

5.        Debt financing instrument is easy to issue and has flexible maturities. A registration system is adopted in the issuance of debt financing instrument. Within the approved issue size, issuers can issue debt financing instruments by stages, or take other measures to accelerate financing. Enterprises can tailor size and maturities of debt financing instrument issued in each stage within the two-year valid registration period.

Requirements for Issuance of Debt Financing Instrument

According to regulations of National Association of Financial Market Institutional Investors(NAFMII), enterprises that issue debt financing instrument are not subject to any special restrictions.

Registered issue size of debt financing instrument (CP&MTN) should not exceed 40% of net asset of the issuer.

Estimates on Issuance Cost of Debt Financing Instrument

Financing Mode

Lead Underwriting Fee

Rating Fee

Legal Expense

Annual Membership Fee paid to NAFMII

Registration,custody and Debt Payment Fees

Commercial Paper

0.40%

RMB 250,000

RMB 100,000

RMB 100,000

RMB 20,000

Medium Term Note

0.3% per annum

RMB 250,000

RMB 100,000

RMB 100,000

RMB 20,000

Debt Financing Instrument Issuance Procedures

1.        Issuer and related intermediaries prepare application documents pursuant to related requirements of NAFFMII.

2.        The lead underwriter recommends the debt issuance to NAFMII, and submits the application documents.

3.        NAFMII will issue registration notice and confirm the maximum issue size of proposed debt financing instrument within 30 working days after receipt of the abovementioned application documents.

4.        The lead underwriter will underwrite the issue of debt financing instrument, or organize a group to underwrite the issue of debt financing instrument.

5.        The issuer should disclose debt issuance prospectus and other related information on www.chinamoney.com.cn or www.chinabond.com.cn at least 5 working days before issue date.

6.        After the issuance is completed, the issuer should disclose results of the issuance on the first working day after the date of debt and claim registration.

Intermediaries for Issuance of Debt-financing Instrument

1.        Financial institutions that are qualified for underwriting issuance of debt financing instrument can work as lead underwriter and sponsor for the issuance. The lead underwriter will coordinate all intermediaries, help issuers to prepare and submit application documents, organize underwriting group and communicate with regulators. Currently, leader underwriters for issuance of debt financing instrument are mainly banks.

2.        Rating agencies will give credit ratings and rating report and follow up on the issuance. 

3.        Lawyers will be hired to give legal opinion letter supporting compliance and legitimacy of the issuance.

4.        Balance sheets, income statements and cash flow statements audited by chartered accountants as well as auditor’ opinions for the latest three accounting years.

Our Bank’s Advantage in Underwriting Debt Financing Instrument

1.        The HO of China Guangfa Bank attaches great importance to the debt financing instrument issuance underwriting services. Our bank has a strong underwriting team that can guarantee efficient communication with NAFMII.

2.        China Guangfa Bank has an excellent, diligent and professional underwriting team. It can complete the preparation of application documents in short time.

3.        Our bank has a wide range issuance channels. The application submitted through our bank can be approved very soon, which will greatly shorten the time spent in registration in NAFMII.

4.        Our bank can effectively take advantage of our trading status in interbank bond market to minimize the issuance cost.

Successful Issuance of Debt Financing Instrument

1.        Our bank provided comprehensive services to Pinggao Electric

Banks are becoming increasingly customer-oriented. Corporate customers are particularly important in banks’ customer management, as they contribute major resources and stream of profit. Commercial banks are designing customized service solution and product portfolio based on different needs of customers. Meanwhile, banks are also adopting differentiated customer management strategy and consolidating their resources to realize win-win situation between banks and enterprises and maximize banks’ profitability. 

During the past two years, China Guangfa Bank deeply explored its corporate customer base, adopted comprehensive marketing strategy and strived to provide customized financial services. China Guangfa Bank also took various measures to improve degree of customer’s satisfaction, search new stream of income and enhance comprehensive profit contribution of single customer. 

Pinggao Electric Co. Ltd. (Pinggao Electric) is a publicly-traded company that produces and sells high voltage switchgear. In 2007, the company took up a major R&D project and started construction of a new high voltage switchgear production plant in a bid to improve its ability to assemble and test gas insulated switchgear (GIS). These business plans led to a large demand for capital. China Guangfa Bank seized the opportunity and entered into an agreement with Pinggao Electric to underwrite issuance of the company’s commercial paper. The commercial paper’s maturity was 1 year and RMB 400 million was raised. In 2009, Pinggao Electric was in need of additional working capital, owing to increased production capacity, increased order contracts and increased inventory caused by the financial tsunami. After the first-phase of commercial paper was fully repaid, China Guangfa Bank suggested the company continue to raise funds through issuance of commercial paper. The suggestion was adopted. In September 2009, our bank successfully underwrote the issuance of the second-phase commercial paper of Pinggao Electric, raising RMB 500 million and helping the company cut financial costs by over RMB 10 million.

Our bank further expanded room for cooperation with high-quality customers, and developed and enhanced the tie between our bank and enterprises. 

(1)       Benefits for Enterprises

A. Financing costs for enterprises are reduced. During the past two years, China Guangfa Bank raised a total of RMB 2.4 billion for its corporate customers through our bank’s market and credit channels. At lower costs, China Guangfa Bank helped enterprises to raise working capital, expand production capacity and meet special capital needs through debt issuance. All these effectively promoted business development of corporate customers. 

B. China Guangfa Bank has helped corporate customers to adjust their financing structure, which greatly eased short-term debt pressure of corporate customers and enhanced stability of corporate customers’ cash flow, creating more economic benefits for corporate customers.

C. China Guangfa Bank is also helping its corporate customers to improve their management. Amid the cooperation between our bank and its corporate customers, lots of investigation will be held, and our bank will have in-depth communication with the management of corporate customers. Our bank will help the management to further understand companies’ strengths, and expose deficiencies as well as potential risks in companies’ management and operation. Meanwhile, our bank will propose corrective measures to improve the overall management of companies.

2.        Our bank helped Huadian Coal Industry Group Co. Ltd. pass the registration meeting and complete debt issuance as soon as possible.

 

On February 18 2009, NAFMII held the sixth registration meeting for the year 2009, to review a number of medium term note and commercial paper registration applications. The registration application for the 2009 Phase-1 Commercial Paper of Huadian Coal Industry Group that is prepared by our bank was also reviewed on the meeting. As the application documents prepared by our bank disclosed enough information, met all module requirements, and gave objective financial analysis and in-depth industrial analysis, they are unanimously approved by all registration committee members. The application is approved on the meeting unconditionally, without any modification. 

The approval of this debt issuance application reflected our bank’s concept of joint marketing between the HO and branches and the HO serving branches. On December 1 2008, the Beijing branch submitted the recommendation report. Immediately after that, the Financial Market Department in the HO and the Credit Approval Department in the HO started the internal working process and cooperated with Beijing branch to prepare application documents. On December 19 2008, the application documents were submitted to National Association of Financial Market Institutional Investors. After that, the Financial Market Department in the HO kept close communication with National Association of Financial Market Institutional Investors, and finally prompted the National Association of Financial Market Institutional Investors to receive the application in January 5 2009 and pass the application unconditionally at the registration meeting held on February 18.

Our bank gained high recognition from customers for our high work efficiency and communication ability. Our bank will take advantage of this opportunity to widen and deepen our bank’s cooperation with Huadian Group and enhance the derivative income in our bank’s debt financing instrument underwriting business. 

3.        Our bank provided comprehensive services to Jiangsu High Hope International Group and implemented the “Customer-centered” service concept

On January 26 2010, the initial issuance of 2010 Initial Phase Debt Financing Instrument of Jiangsu High Hope International Group in 2010 that was underwritten by our bank is finished. Thanks to the efforts of our bank’s underwriting team from the Financial Market Department, the enterprise, which is from the foreign trade sector, gained full recognition from investors in interbank market. On the date of bookkeeping filing, this phase of debt is oversubscribed by 5-6 times. Fund companies, securities companies and rural commercial banks actively subscribed the debt. In the end, interest rate on this phase of debt was set at 3.99%, much lower than the bank loan interest rate at the same period. The enterprise’s financing cost is largely lowered as a result.  

The senior executives in Jiangsu High Hope International Group is very satisfied with our bank’s efficient and high-quality services and “Customer-centered” service concept after knowing the oversubscription and debt interest rate. They pledged to strengthen cooperation with our bank in other business areas, including bank loans and deposits, trade financing, foreign currency trading and note business. Nanjing branch revealed that our bank has become the second largest partner bank of Jiangsu High Hope International Group thanks to the success in this debt issuance.

4.        Our bank marketed debt of Jiao Zuo Wan Fang Aluminum Manufacturing Co., Ltd. to a wider range of investors and helped greatly lower interest rate on the debt. Owing to the success, we gained recognition from senior executives of Jiao Zuo Wan Fang Aluminum Manufacturing Co., Ltd..

On March 30 2010, the issuance of 2010 Initial Phase Debt Financing Instrument of Jiao Zuo Wan Fang Aluminum Manufacturing Co., Ltd. that is underwritten by our bank is successfully completed. The number of debt issuances underwritten by our bank in Q1 2010 was the same as last year, but our profit largely exceeded the same period last year. Owing to the marketing efforts paid by the Financial Market Department in the HO, this phase of debt is well-received in interbank market. On the date of bookkeeping filing, fund companies, securities companies and rural commercial banks actively subscribed the debt, and the debt was oversubscribed almost 8 times. The interest rate on the debt was set at 3.29% in the end, much lower than bank loan interest rate at the same period, and only 12 basic points higher than the minimum interest rate on commercial paper required by NAFMII. Owing to these achievements, our bank gained recognition from the customer. According to statistics available at Wind Info, interest rate on all debt issuances underwritten by our bank is lower than interest rate on other debts in the same category issued on the same day. This fully reflected our bank’s marketing strength and “Customer-centered” service concept.

5.        Our bank minimized customer’s financing costs in the issuance of debt financing instrument of Angel Yeast. Interest rate on the debt is the lowest among all debts issued by the same level of enterprises on the same day.

Our bank provided comprehensive services to Angel Yeast in the issuance of its commercial paper. The success in this issuance showed our bank’s marketing strengths. Interest rate on the debt is the lowest among all debts issued by enterprises on the same date of bookkeeping filing. For more details, please see the following table:

Issuer

Name

Issue Size

(RMB 00,000,000)

Maturity

(Days)

Interest Rate

(%)

Issue Date

Rating

Xiamen Tungsten Co.,Ltd.

09 Xiawu CP02

5

365

3.4

2009-8-27

AA-

Shanxi Lanhua Coal Industry Group Co., Ltd.

09 Lanhua CP01

6

365

3.4

2009-8-27

AA-

China Yituo Group Corporation Limited

09 Yituo CP02

3

365

3.4

2009-8-28

AA-

Kunming Iron & Steel Group Co., Ltd.

09 Kungang CP01

15

365

3.4

2009-8-31

AA-

Guangdong Goworld Co.,Ltd.

09 Chaosheng CP01

3

365

3.4

2009-8-31

AA-

Angel Yeast Co. Ltd.

09 Anqi CP01

3

365

3.38

2009-9-1

AA-

Zhengzhou Coal (Group) Co. Ltd.

09 Zhengmei CP01

10

365

3.4

2009-9-11

AA-

Sources: Wind Info