SHENZHEN: The first issuance of joint bonds by small- and medium-sized enterprises (SMEs) in China could quench their fund thirst, officials and analysts said yesterday.

Shenzhen Mayor Xu Zongheng called the issuance a “groundbreaking event”. It would allow SMEs to raise funds from the bond market - a bold experiment, which could assist the reform of the financial system and widen SMEs’ financing channels.

After 16 months’ preparation, 20 SMEs in Shenzhen, of South China’s Guangdong Province, including mainland-listed Invengo Information Technology Co and Sanxin Glass Technology Co, jointly issued a bond last Wednesday to raise 1 billion yuan from institutional investors.

The five-year, fixed-rate bond, with a coupon rate of 5.7 percent and an AAA credit rating - the highest available - sold out on the first issuing day.

These companies are required to pay a 400 million yuan principal at the end of the third year and 300 million yuan at the end of the fourth and fifth years.

China Development Bank (CDB) acts as the managing underwriter of the collective bond and provides a guarantee for it.

Eleven of the 20 rapidly growing SMEs are engaged in the electronics information industry, and five are in the new energy and new materials industries.

Over the past three years, the annual average of each of the 20 SMEs’ assets has been 180 million yuan. The average annual revenue and net profit of each was 320 million yuan and 25 million yuan respectively during the same period. That amounts to a 39 percent year-on-year growth in revenue and a 46 percent year-on-year growth in net profits.

“The joint bond issuance will offer new options for SMEs to raise funds directly in the capital market,” Shenyin & Wanguo Securities analyst Qu Qing said. “It can be a more convenient and economical financing channel than bank loans.”

The successful issuance of the first such bond will encourage more SMEs to assemble groups and raise funds, because mainland SMEs would not have the financial clout or business track records to issue bonds separately, he said.

Source:China Daily

Copyright Fund China 2008.

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