SZSE Spares No Efforts to Optimize the Bond Market

date: 2018-1-26

In recent years, in accordance with the decisions and arrangements of China Securities Regulatory Commission (¡°CSRC¡±) on the sound development of bond markets of stock exchanges, with the mission of serving the real economy at heart and the prevention of systematic risks as the bottom line, SZSE, committed to deepening reforms and development, has upheld and actively responded to the national development strategies, optimized product structure, improved its regulatory system and services, and continued to serve the real economy with the bond market in greater depth and breadth.

 

In 2017, SZSE made a breakthrough in bond issuance via bidding by local governments and China Development Bank launched such innovative products as Convertible Innovation and Entrepreneurship Bond, Panda Bond, Home-rental Asset-backed Special Plans, and PPP Asset-backed Special Plans. The scale and quality of the market is ever increasing. At the end of the year, there were 4031 bonds, including asset-backed products, listed in Shenzhen market, with a total par value of CNY170 million under custody, an increase of 27% compared with the beginning of the year. Total annual direct financing increased by CNY755.6 billion and trading volume (including that of bond repo) was up by 30% to CNY1.839 billion year-on-year.

 

Resilient to difficulties: imposing strict regulation and holding the bottom line of risk prevention

 

The priority of risk prevention is to maintain the stability of the bond market. In 2017, SZSE was proactive in strengthening front-line regulation by means of classified regulation and review, adjusting scale and structure, enhancing dynamic supervision, focusing on risk screening and identification, and mobilizing regulatory forces to hold the bottom line of systematic risk prevention.  

 

SZSE imposed strict control on issuance admittance. In strict compliance with the requirement to ¡°impose regulation once an issuance application is filed¡± and the national industrial policies, SZSE continued to focus on the real estate and sectors of excess production capacity, blocked the back door for quasi-government financing platforms, and adjusted the structure of issuers by supporting the good ones while eliminating the bad ones. In 2017, issuance scale of the real estate and industries with over production capacity and quasi-government financing platforms dropped significantly, while that of highly-rated (AAA) bonds doubled compared with 2016.

 

SZSE built a regulation and control mechanism of ¡°one trunk with four wings¡± on bonds continuing to mature, with the trunk being classified regulation of bond risks, ¡°four wings¡± being risk screening and identifying, market monitoring, regulatory cooperation, and market- and law-based handling. SZSE issued guidelines on credit risk management of bonds, set up a trustee-based classified regulatory system on bond risks, organized risk screening and investigation in advance and continued to conduct dynamic risk appraisal and evaluation to get a clear picture of the risks and nip them in the bud. SZSE was also working on a system of indicators to monitor abnormal fluctuations in the secondary bond market, strengthened management of investor suitability, improved dynamic monitoring of market risks and the ability of real-time risk forecasting, optimized regulatory communication, increased sharing of information, united regulatory forces and improve its initiatives in resolving risks. SZSE upheld market- and law-based treatments of high-risk bonds, urged issuers and trustees to perform their duties and imposed strict regulation in accordance with laws. Over the year, SZSE has adopted regulatory and disciplinary measures for 177 times, among which, circulating notices of criticism for 21 time and making public denouncements 3 times; SZSE also pushed through the final judgment of a criminal case involving Shengdawei Private Placement Bond fraud, and successfully resolved default risk of 11 bonds, with a zero default rate over the year.

 

Consolidating the foundation: adjusting bond structure and improve the quality of the bond market

 

To optimize the bond structure and reduce operational risks, SZSE actively promoted bonds with high ratings such as local government bonds and bonds issued by China Development Bank (¡°CDB Bond¡±), and reshaped a ¡°dual-drive¡± bond market with interest bonds and credit bonds to improve the quality of the market.

 

Year 2017 witnessed a breakthrough in local government bond issuance. With the guidance of the Ministry of Finance and support of CSRC, SZSE made better use of its bond market and expanded the issuance channels for local bonds. Over the year, a total of 10 local governments issued a total of CNY150 trillion debts including general bonds, special bonds, land reservation bonds, road toll bonds, and railway transportation bonds. Besides, SZSE provided customized services to cater to the specific fiscal needs of local governments, assisting bond issuance in the amount of tens of billions of yuan, and helping with offerings by municipal governments in small volume, and offered experience of premium quality to issuers and underwriting syndicate during bond issuance. SZSE actively mobilized members of the underwriting syndicate to structure and integrate their businesses and giver full play to the brokerage business and to improve the liquidity of the secondary market for local government bonds. SZSE promoted the local bonds via various channels and conducted investor education, with about 35,000 individual investors subscribing for over CNY120 million of the bonds. The advantages of diversified investors begin to manifest themselves in the bond market.

 

CDB Bond was first issued in Shenzhen bond market in 2017. Through active cooperation and coordination with SZSE, China Development Bank raised a total of CNY38.63 billion of funds in Shenzhen market via 5 issuances by means of interest bidding, price bidding and quantity bidding. CDB Bond issuance and additional issuance has become a commonplace in Shenzhen market. CBD Bond takes a variety of forms and is highly-recognized in the market, and trading is active. The successful issuance of CDB Bond in Shenzhen market increases the shares of short-term (including one-year term) products under custody, greatly satisfies the need for bond transaction allocation of investors, optimized the structure of pledged bonds in Shenzhen market, help enrich the investment strategies of investors and increase their returns. 

 

Be a vanguard: expediting transformation to serve national strategies through innovative services

 

Fully unleashing its edge in bond and asset-backed securities systems, SZSE has actively served in national key parts and crucial fields that include the Belt and Road Initiative, concurrent employment of house purchase and house renting in housing system, poverty relief, innovation and entrepreneurship, green development and PPP partnership.

 

SZSE kept expanding the coverage of innovative products, including green bonds, panda bonds, renewable bonds, innovation and entrepreneurship convertible bonds, and the Belt and Road special bonds. Cumulatively, the green industry corporate bonds and green asset securitization products issued have amounted to CNY87.15 billion, the supported financing of enterprises in poverty-stricken areas CNY17.06 billion and the NDRC¡¯s and Ministry of Finance¡¯s first-batch PPP project asset-backed securities issued CNY570 million. In addition, SZSE has led in launching innovation and entrepreneurship bonds and the Belt and Road special bonds, with the issued volume totaling CNY1.95 billion and CNY12.5 billion respectively. All these measures taken are to meet the diversified financing needs of the real economy and power the implementation of national key strategies.

 

SZSE earnestly explored the innovation in asset securitization products and implemented the national policy guidance in encouraging both house purchase and house renting to help the development of housing and leasing market. On 3 November 2017, ¡°CYPA Equity-type REIT Asset-backed Special Plan¡±, the first of REITs in China, was successfully launched, with the funds raised being CNY270 billion. This has offered financing support to resolve the housing issues for young talents in cities and served as an important demonstration for developing REITs pilots to house leasing enterprises. On 1 December 2017, the CNY6-billion ¡°China Merchants Chuangrong - China Merchants Shekou Long-term Rental Apartment Asset-backed Special Plan¡±, the first piece of long-term apartment mortgage loan asset securitization whose total line, was approved. This has not only efficiently used the inventory assets of house leasing companies, but reserved the ownership of long-term rental apartment, facilitating enterprises in smoothing the complete service chain of ¡°investment, construction, operation and exit¡± and giving a leg up to the upgrade and transformation of traditional leasing industry.

 

The securitization of supply-chain financial assets cut SMEs¡¯ financing cost. SZSE has actively guided the innovation in the asset securitization products of accounts receivable and payable to boost the sound development of industrial chain and optimize resources allocation. For example, in ¡°Ping An Securities - Vanke Supply Chain Financial Asset-backed Special Plan¡±, the underlying assets are China Vanke Co., Ltd.¡¯s accounts payable to its upstream SMEs for purchasing building materials or engineering services. The issued serial products totaled 19 tranches, and the total issue scale CNY25.185 billion, with financing services provided to a total of more than 1,800 SME service providers. Among them, those whose registered capital is less than CNY100 billion accounts for 34%. On average, thanks to the plan, the supplier SMEs saved 100-300BP financing cost and their payment collection period was shortened from two months to half a month, which has effectively eased SMEs¡¯ cash flow pressure.

 

With three featured training conferences held and five pilot projects implemented, SZSE highlighted its characteristic positioning of serving tech innovation and launched the innovation and entrepreneurship convertible bonds attached with equity conversion clauses to accommodate innovative start-ups¡¯ features. On 16 October 2017, ¡°Lantian Convertible S1¡±, the first convertible bond of innovative start-ups, finished issue, with the first-year interest rate being 2%. On 12 December 2017, ¡°Value Convertible S¡±, the first convertible bond of the innovative start-ups not listed on the New OTC Board finished issue, with the interest rate being 2.8% and providing a reference sample of financing to more innovative start-ups. Innovation and entrepreneurship convertible bonds reduce the financing cost of tech innovative SMEs through right-embedded value, serving the national innovation-drive development strategy.

 

Build new service brand: enhancing effectiveness to complete market supporting system

 

In 2017, SZSE fully made use of financial service advantages, actively improved market service awareness and responded to the business needs of market participants such as bond issuers, investors and underwriters, having facilitated the sound implementation of many market service measures.

 

SZSE fully launched one-stop service. Through cooperation with CSDC Shenzhen, SZSE practised one-stop service for bond issue and listing. That is, bond registration business was preposed, bond issue registration formalities simplified, key operation points specified, and business windows unified, greatly improving the bond issue and listing business efficiency. ¡°17 Shenzhen Investment 01¡±, the first bond of the one-stop service pilot, finished issued on July 12 and went listed on July 17. The bond underwriters in this case had prepared in advance the application materials for registration and listing according to the one-stop service guide, thus delivering the goal of T+3 listing after issuance.

 

SZSE established an information exchange and sharing mechanism with market institutions. The commission of a new system for fixed-income business review, issue, listing and duration operation has furthered the transparency and convenience of approval process. An auto reminder function for undone businesses was opened to market institutions. Moreover, ¡°SZSE Fixed-income¡±, a WeChat official account, was introduced to release on a daily basis the business information on issuance, listing and interest payment, the approval progress, and the regulatory information.

 

SZSE improved the disclosure method for calculating repo interest. The pledged repo interest calculation was reformed to address the holiday effect issue in repo events, level the repo price fluctuation in secondary market, and help the market understand more accurately the SZSE market repo interest rate singles.

 

SZSE set up green channels to serve quality enterprises. SZSE has built a professional service team to carry out dedicated review by dedicated persons on the quality projects of excellent enterprises, establishing a green channel of communication and review to amplify support on market cultivation. In addition, cooperative development has been deepened for resources platform match-making so as to offer quality issuers with business-specific service on bond financing and asset securitization.

 

As the thriving spring comes, in 2018, SZSE will take Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as the guidance to constantly propel the quality and sound development of the bond market and implement in greater depth the three tasks of ¡°serving the real economy, preventing financial risks and deepening financial reform.¡±

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