To diversify risk management tools on and maintain the reasonable order of the bond market, under the unified deployment of China Securities Regulatory Commission (CSRC), on July 30, SZSE released the Notice of SZSE on Conducting Corporate Bond Swap Business (the “Notice”). The Notice standardizes the business content, operating principles, information disclosure and others of bond swap business according to current laws and regulations.

Defining the connotation of bond swap and adhering to the market-oriented, law-based swap principle. The Notice defines bond swap as that an issuer issues corporate bonds (“swapped bonds”) to swap corporate bonds (“underlying bonds”) listed on the exchange according to the Measures for Issuing and Trading Corporate Bonds and relevant rules. Such a bond swap can be conducted only in the form of an offer, and the swap is targeted at all holders of the underlying bonds. The bond swap shall follow the market-oriented, rule-of-law-based principle and be conducted between the issuer and the bond holder through independent consultation on a voluntary and equal basis. The swap process shall not harm holders’ legitimate rights and interests.

Laying down stricter information disclosure standard to protect investors’ legitimate rights and interests. The Notice puts forward clear requirements on information disclosure arrangements of bond swap business, including that the issuer shall disclose detailed plans for the bond swap before the starting date of the swap offer, and disclose the results of the bond swap after the expiry of the offer in a timely manner. The trustee of the underlying bonds shall pay sustained attention to matters relating to the swap, disclose interim reports on entrusted matters timely, and warn holders of underlying bonds about relevant risks.

Standardizing bond swap procedures to ensure orderly business operation. Because the bond swap process involves issuance of swapped bonds, cancellation or delisting of underlying bonds after swap, etc., the Notice, considering the prior pilot practices, requires the share of the underlying bonds involved in the swap not be restricted by pledge or freezing. It emphasizes that regarding the underlying bonds that have not been accepted, the issuer shall continue to fulfill its payment obligation according to the prospectus of the underlying bonds and relevant agreements, and that the underlying bonds that have been accepted shall be promptly cancelled.

So far, SZSE has issued relevant notices on bond repurchase and bond swap business and gradually improved the market-oriented, rule-of-law-based debt management system. Issuers now may employ a variety of debt management tools to actively manage term bonds, improve the debt maturity structure, reduce financial cost and mitigate credit risk. Moreover, SZSE has launched a number of services including bond put-back revocation, put-back-and-resale, etc., offering more choices for bond market players in their risk management. Next, SZSE will continue to follow the deployment and requirements of the CSRC, improve the basic rules and regulations for the bond market, forestall and defuse bond credit risk, protect investors’ legitimate rights and interests, and further facilitate the healthy, stable development of the bond market.