SSE Specifies Key Concerns of Corporate Bond Review

The SSE No. 3 Guideline for Examination Rules of Corporate Bonds’ Issuance and Listing: the Key Concerns of Corporate Bond Review (the Guideline for short), issued by the Shanghai Stock Exchange (SSE) on April 22, specified regulations on the key concerns of corporate bond review and relevant information disclosure. The Guideline aims to lay a solid foundation for the bond market through screening out high-quality companies and supporting them while rejecting the low-quality ones. The exchange will act as a gatekeeper of the bond market’s entrance and guide issuers and relevant intermediaries to improve the quality of information disclosure. .

Since the implementation of China’s revised Securities Law, the registration-based IPO system reform of the exchange-traded bond market has been well underway with improved examination quality and efficiency, bolstering the financing of enterprises as well as development of the real economy. However, cases cropped up where certain issuers made unreliable information disclosure; or corporates adopted unsound governance structures; or some intermediaries’ business quality was not satisfactory. To that end, under the leadership of the China Securities Regulatory Commission (CSRC), the SSE formulated the Guideline in response to market concerns based on in-depth analysis of typical problems in issuance of corporate bonds and experience from review practice.

Adhering to the concept of taking information disclosure as the center, the Guideline mainly focuses on four major issues about bond issuers: first, organization and corporate governance. Priority goes to whether issuers, controlling shareholders and actual controllers have major caused negative public opinions and made serious dishonest conducts, and whether issuers have large-amount non-operational fund transfer, large-amount outward guarantees, unsteady equity structures and others; second, disclosure of financial information. Reviewers focus on whether issuers have unreasonable debt structures and debt baskets, over-expanded debts, restricted large-amount assets, unstable cash flows and profits and abnormal financial indicators; third, special issuers. Emphasis is paid to whether an issuer is an investment holding issuer characterized by a weak group company and a strong subsidiary company, and circumstances for concern such as credit downgrade and debt default record. Specific requirements are given for information disclosure by special issuers including urban construction and real estate enterprises; fourth, intermediaries should fulfill their duties. Importance should be attached to review of relevant issues by intermediaries and the appraisal records of business quality. In case of serious negative business records for any intermediary and relevant personnel, examination and inquiry should be strengthened, and categorized examination should be propelled as well.

Upon years of development, the SSE bond market has become one of the major markets for local governments and enterprises financing in China and played a key role in elevating direct financing proportion and serving the real economy. Currently, to consistently propel the quality growth of the SSE Bond Market, we should cement the legal construction of the bond market following the principles of marketization and legalization. The release of the key concerns of corporate bond review is a major measure to improve the examination quality and efficiency with institutional construction in the new development stage. In future, the SSE will continue to optimize standards, strictly implement procedures, and support the legal financing of eligible issuers, while cracking down on violations in the bond market to protect the legal rights and interest of bond holders. The exchange will high-quality development concept and work toward the balance investment and financing in the bond market.