Shanghai Securities News｜Implementation of the First Batch of Corporate Bond Re-issuance on SSE, with the Primary and Secondary Linkage Stimulating Market Vitality

Translated from Shanghai Securities News—www.cnstock.com

(Shanghai Securities News, www.cnstock.com) (Reporter Sun Zhong) Recently, Shanghai Stock Exchange(SSE) issued the Notice on Matters Concerning Pilot Corporate Bond Re-issuance and Asset-backed Securities Expansion Business (hereinafter referred to as the Notice), officially launching corporate bond re-issuance. Corporate bond re-issuance aims to meet the needs of market entities for investment and financing, strengthen the linkage between the primary and secondary markets, stimulate the vitality of secondary market transactions, and facilitate the high-quality development of the bond market.

Bond re-issuance has mature applications in treasury bonds, policy bank bonds, municipal bonds, and other varieties, but it is still a relatively innovative approach among corporate credit bonds. The Notice has made arrangements regarding the definition of re-issuance, material preparation, issuance and listing process, intermediary responsibilities, and market-making mechanism coordination to provide clear guidance for relevant market entities. The release of the Notice has attracted market attention. CITIC Securities Company Limited and China Merchants Securities Co., Ltd. have taken the lead in completing the first batch of securities corporate bond re-issuance pilot projects, providing practical experience for the promotion of the re-issuance mechanism to other high-quality issuers.

A relevant person in charge of SSE told the reporter that in recent years, SSE has continued to deepen the primary and secondary linkage in the bond market and the coordination between investment and financing. Furthermore, SSE has adhered to collaborative innovation of issuance and trading mechanisms, promoted the improvement of market liquidity, reduced corporate financing costs, and effectively enhanced the sense of gain for high-quality issuers.

Simplify the issuance and listing process and effectively connect market making and other trading mechanisms

According to the Notice, corporate bond re-issuance means that the issuers of existing corporate bonds that have been listed on SSE engage in incremental issuance in line with pricing and merge the incremental issued bonds with the existing bonds for listing and trading. The original principal and interest payment arrangements and investor rights protection mechanisms remain unchanged in principle.

Overall, the Notice has optimized the issuance and listing materials and procedures of re-issued corporate bonds around the goals of facilitating the financing of issuers, fully protecting the interests of bondholders, and meeting investors' trading and investment needs. It has made special arrangements for investor rights protection and information disclosure mechanisms for existing corporate bonds with guarantee clauses and organically connected with existing corporate bonds in terms of mechanism arrangements such as merged listing, trading, and market-making.

Regarding issuance and listing materials and procedures, the Notice has clarified that issuers can file new applications or use existing valid approval documents to participate in the re-issuance business and determine the issuance pricing according to the price subscription method. If the existing corporate bonds involve guarantee clauses, the issuers shall make proper arrangements for the change of the guarantee mechanism before implementing re-issuance. Additionally, the intermediaries shall express verification opinions. The overall issuance and listing process remains unchanged, while business links such as the application for securities codes can be omitted.

In terms of listing and trading mechanism arrangements, the Notice has specified that on the first day of the merged listing, the basic information such as the securities code, securities abbreviation, maturity date, coupon rate, and special clauses of the re-issued corporate bonds and the existing corporate bonds should be consistent. After the re-issuance, corporate bonds that meet the conditions of benchmark market-making varieties can be included in the scope of credit bond benchmark market-making.

CITIC Securities Company Limited and China Merchants Securities Co., Ltd. have implemented re-issuance pilot projects; central SOEs are ready for re-issuance

Some leading securities companies have responded quickly and taken the lead in exploring diversified issuance approaches. Relying on the advantage of "flexible expansion" of re-issuance, they have implemented the first batch of securities corporate bond re-issuance projects on the exchange.

On May 29, CITIC Securities Company Limited and China Merchants Securities Co., Ltd. completed the bookkeeping for the re-issuance of the first batch of securities corporate bonds. Their 25 CSI G1 and 25 CMS S5 bonds listed on SSE had a re-issuance scale of 2 billion yuan and 1.5 billion yuan respectively. The scale of a single bond after the re-issuance reached 4 billion yuan and 4.2 billion yuan respectively. Investment institutions such as commercial banks, securities companies, fund companies, wealth management companies, and insurance companies have subscribed enthusiastically, fully demonstrating the high recognition of the bond re-issuance mechanism from the market and investors.

From a practical point of view, the bond re-issuance mechanism is usually used by high-quality issuers to enhance the scale of single bond issuance, thereby driving the improvement of secondary market liquidity and valuation stability. The reporter initially learned that some high-quality central and state-owned enterprises are actively preparing for the re-issuance of existing corporate bonds, which may be gradually implemented soon, and the demonstration effect is expected to gradually emerge.

In recent years, SSE has timely responded to market demand, innovated service mechanisms, and launched a "package" of bond services for central SOEs. A financial director from a central SOE told the reporter, "Through the re-issuance of corporate bonds, our control over the scale and frequency of issuance will be greatly improved, which can help issuers grasp favorable market windows and complete financing efficiently. It is also closely connected with the existing market-making mechanism. I believe that through the issuance and trading dual innovation mechanism, we can drive the valuation optimization of varieties with various maturities to reduce financing costs."

The re-issuance mechanism offers positive significance; the ecosystem for the primary and secondary linkage is gradually taking shape

Combined with historical experience, reasonable re-issuance arrangements can extend the issuance cycle of a single bond, prolong the active trading duration in the secondary market, and promote the enhancement of market liquidity of a single bond. Additionally, by boosting the existing scale of medium- and long-term bonds, it is possible to give full play to the capital aggregation effect of single bonds, enhance the endogenous stability of the issuer's yield curve, and reduce the issuer's financing costs in the long term. Moreover, the re-issuance mechanism can facilitate the issuer's control over the scale and rhythm of issuance. It can also help issuers timely grasp favorable market windows and complete financing efficiently while reducing the impact of one-time large-scale issuance on market funds.

It is understood that SSE is actively playing the role of market organization and promoting the development of the bond market according to the philosophy of "primary and secondary linkage alongside investment and financing coordination". In recent years, SSE has successively launched innovative mechanisms such as bond market-making, issuance and underwriting, and quotation-trading linkage business. Furthermore, SSE has continuously made efforts to innovate index-based products like ETFs, focusing on promoting the financing and pricing functions of the primary market with secondary market transaction prices. Currently, there are more than 240 credit benchmark market-making bonds on SSE with an issuance scale of about 750 billion yuan. At the beginning of this year, SSE launched 4 benchmark market-making credit bond ETF products with a total scale of over 35 billion yuan.

Some capital market researchers pointed out that "a highlight of SSE's re-issuance mechanism compared with the previous additional issuance mechanism is that if the existing corporate bonds can reach the market-making bond entry threshold after re-issuance, they will be qualified as market-making bonds and can be included in the allocation scope of credit bond ETFs. The liquidity of bonds and investor recognition will be enhanced, which will help narrow the interest rate spread and foster a virtuous interaction between the primary and secondary markets."

The above information is provided for reference purposes only and does not constitute investment advice.