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| Introduction on Corporate Bonds |
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Introduction on Corporate Bonds |
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Corporate bonds refer to the securities with a maturity of over one year issued by a company. Corporate bonds are more market-focused financing products that have evolved from enterprise bonds to meet investors' investment needs and companies' financing needs. The key differences between corporate bonds and enterprise bonds are as follows:
(1) Issuers Enterprise bonds are mainly issued by institutions affiliated to Central Government departments, enterprises solely funded by the State, State controlled enterprises and other large-sized state-owned entities. In contrast to enterprise bonds, there are no restrictions on the issuers of corporate bonds. Even small companies can issue corporate bonds so long as they meet the relevant criteria.
(2) Approval system Enterprise bond issuance is subject to administrative approval for a quota while corporate bond issuance only requires verification and approval, namely, the latter is more market-driven.
(3) Regulatory authority The National Development and Reform Commission (NDRC) has authority to approve issuance of enterprise bonds while the China Securities Regulatory Commission (CSRC) has the power to ratify issuance of corporate bonds,
(4) Information disclosure There are no stringent disclosure requirements on the issuer of enterprise bonds. And further, after the issuance, the approval authority will not monitor the issuer's credit status and operations on an on-going basis. Contrary to enterprise bonds, disclosure requirements on corporate bond issuers are more rigid: "a company applying for issuance of corporate bonds shall disclose or provide relevant information truthfully, accurately, completely, timely and fairly and there shall be no false representations, misleading statements or material omissions"; meanwhile, credit rating agency are required to publish the follow-up rating report at least once a year during the term of the bonds.
(5) Purposes Use of the proceeds from enterprise bond issuance is generally subject to the approval of the government as enterprises bonds are directly related to government approved projects. Typically, enterprise bonds are issued to provide funding to infrastructure construction, fixed asset investment, key technical renovations, public welfare undertakings and other projects that are vital to national well-being and the people's livelihood. Conversely, companies may file for corporate bond issuance according to their own operational needs. Moreover, the way they use the funds is an entirely internal affair of the issuer and does not require approval from the government. In practice, funds raised through corporate bond issuance are mainly used for business operations.
In addition, a shelf registration system is introduced in corporate bond issuance. Under the system, a company can apply for one-off approval and issuance of bonds in installment. It should issue the first installment within six months following the CSRC's approval, with the size of the first installment no less than 50% of the total issuance. The remaining portion should be issued within 24 months, with the size determined by the company itself.
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*Above information is quoted from Shanghai Stock Exchange Fact Book and only applies for domestic companies' listing. For more information, please contact us. |
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