Ladies and gentlemen: Good morning!
I am very pleased to join this conference in Heilongjiang Province to promote the Pilot SME Private Placement Bond Programme.
The SME Private Placement Bond was one of the highlights of reform and innovation of the capital market last year. It serves to improve the capital market's ability to serve the real economy
Chinese economy is now in the stage of acceleration, growth model transformation and institutional transition. We must support endogenous growth. This requires significant downward extension of capital market services, fostering fresh growth points in local economies. The Pilot SME Private Placement Bond Programme, one of the highlights of capital market reform last year, is a useful attempt to serve key areas and weak links in real economy.
SME Private Placement Bond is the country’s first completely market-based bond. It does not require administrative approval, nor net assets or profitability requirements. Over the past year, the SME Private Placement Bond has gained high market recognition for its mode of offering, duration of document filing and requirement of credit enhancement, which meet the needs of both issuers and investors. The product is also applauded for flexible design and investor suitability management. SME Private Placement Bond entirely relies on intermediary institutions, connecting SMEs with both potential and risk to investors with risk-discerning and bearing abilities. The product has displayed strong vigor and vitality. By the end of May 2013, 146 SME Private Placement Bonds have completed filing with SZSE and 98 have accomplished offering with total proceeds worth 11.5 billion yuan (US$1.8 billion). The average coupon rate is 9.25%. The rapid development in private placement bonds has deepened the foundation of the capital market and provides a new approach to support growth in real economy.
SME Private Placement Bond, an entirely market-based product, helps strengthen market restraint mechanism, exerting great significance for the capital market.
SME Private Placement Bond also plays an irreplaceable role in fostering risk awareness in investors. The possibility of bond defaults makes investors increasingly concerned about risk. SME Private Placement Bond is based on the company's financial situation and reputation, reflecting the contractual relationship between the issuer and investors. The government does not provide credit endorsement. This requires that the investors be knowledgeable of the issuer's financial fundamentals, credit rating and credit enhancement measures.
As a result, the market exerts restraint on underwriters and other intermediaries. There have been cases where despite successful document filing, issuance failed, indicating market restraint at work.
SME Private Placement Bond financing will constitute hard constraints and external compliance pressure for fund raising. It is significant for healthy development of the capital market itself to baptize SMEs in their early growth stages. Bond issuers, constantly burdened with the pressure of debt service, have to consider the efficiency in fund allocation and exercise prudent management. Meanwhile, they must observe rules for information disclosure and maintain sound investor relations, in order to lay a solid foundation for future IPO. We understand that based upon positive result of the pilot programme, CSRC allows IPO candidates under review to apply for issuance of corporate bonds in Opinions on Further Promoting IPO Reform in China issued by on 6 June, 2013.
SME Private Placement Bond must firmly take root in Heilongjiang’s local economy, giving capital markets a greater role to play to enhance its local economy by mobilizing concerted efforts by intermediary institutions and enterprises.
The key to success in SME Private Placement Bond is intermediary services, especially securities firms. Securities firms’ customer base, risk control, product design capability assures successful issuance of private debt securities. The pilot project has expanded its scope to cover Heilongjiang. Intermediary agencies will meet more SMEs with local economic natures. Intermediary agencies must take into account natures of these enterprises, proceed from their business needs, optimize product design and match issuers with suitable investors. The financial sector must be based on the real economy and serve the real economy in fulfillment of the essential requirements of modern finance. A hard lesson was learned from the 2008 financial crisis. Agriculture has been the key areas of financial services and a weak link in Heilongjiang’s economy this year. The State Council designated two plains in Heilongjiang as a modern agricultural comprehensive reform pilot area. The capital market should take the opportunity of Pilot SME Private Placement Bond Programme in Heilongjiang, to understand the growth path of local agricultural enterprises, solidly improve services for local agricultural and related businesses. This is the test of the capital market’s ability to serve real economy.
With the nationwide expansion of Pilot SME Private Placement Bond Programme, a gradual scale for credit rating will be formed for different regions in the country, exerting a significant impact on future financing cost for businesses in different localities. Enterprises participating in the pilot programme should cherish the opportunity and shoulder the collective responsibility of maintaining credit-worthiness of the region. Let’s build a highland of credit-worthiness through the private debt pilot programme.
We will work together with you to let the Private Placement Bond take deep root in the black soil in Heilongjiang and let the capital market play a greater role in Heilongjiang’s economic and social transition.