Analysis Of Private Debt Problem Of Small And Medium-Sized Enterprises In The Market

This is a blue ocean of capital, which is a huge cake.

In May 22nd, the Shanghai and Shenzhen Stock Exchange issued a pilot scheme for private equity business of small and medium-sized enterprises (hereinafter referred to as the "pilot approach"). In May 23rd, the Securities Industry Association issued a "pilot scheme for underwriting bonds for small and medium enterprises" by securities companies, supplementing and refining the "Pilot Measures" announced on the previous day's trading.

Since then, the SME private debt market, known as China's junk debt, will soon be on the capital stage.

Reporters found that the private debt of small and medium enterprises is entirely operated by the securities dealers, which may have a greater impact on the income of the securities dealers. Therefore, the securities companies are very positive about the private debt of small and medium-sized enterprises, but as the investors' funds and banks, they say that because of the greater risk, they still hold a wait-and-see attitude towards the private debt of small and medium-sized enterprises.

Junk bonds debut hot spot brokerage

In May 22nd, the Shanghai and Shenzhen Stock Exchange issued the "pilot approach", which put the SME private debt into the market.

This marks the start of pilot private debt business for SMEs.

Small and medium-sized private debt is also known as the pioneer of China's junk debt.

A major reform and innovation is also a breakthrough in improving the capital market system. It provides an effective way to solve the financing problem of SMEs in China for a long time.

Junk bonds originated in the United States in the first century and became popular in the US in the 80s of last century.

In foreign countries, junk debt is also a high risk debt. It is a bond issued by the rating company under the standard Pool Co BB or below Ba level of Moodie company.

Junk bonds provide investors with more interest income than other debt instruments, so junk debt is also known as high yield debt, but the risk of investing in junk bonds is higher than that of investing in other bonds.

The release of the "pilot approach" stipulates that except for financial real estate, unlisted SMEs can issue private debt for SMEs, and the "pilot approach" requires that the interest rate should not exceed 3 times the benchmark interest rate of bank loans over the same period, with a period of 1 years or more.

Compared with the high threshold of listing, the "pilot approach" has greatly reduced the financing threshold of enterprises.

There are no rigid requirements for the issuer's net assets and profitability. Besides, the issuance of private bonds by small and medium sized enterprises is not based on the audit system, but on the exchange filing system, which greatly simplifies the issuance process.

For the securities companies in the critical period of innovation, the introduction of private debt has undoubtedly provided an opportunity.

Reporters interviewed a number of securities dealers learned that the current SME private debt has become a hot topic of discussion at the internal meeting of various brokerages.

The head of a joint venture brokerage Bond Financing Department expects that the actual financing cost of SMEs is estimated to be around 15%, with investors earning about 10%.

Investors take up 100% of the risk and get 60% of the profits, which is a good business for brokerages.

We hope to liberate after mature and reduce the intermediate cost.

An investment manager of the asset management department of a brokerage firm in Beijing said that from the perspective of investment, the private debt of small and medium-sized enterprises is worth investing. At present, some fund companies have begun to issue private debt funds, and this product should also be very attractive.

According to Liang Jing, a non bank financial analyst at Guotai Junan, high-yield debt can bring immediate returns to securities companies and will become an important source of business in the future.

It is expected that in the next 3-5 years, the high yield debt business will bring about 7 billion 300 million -143 billion yuan in revenue for the securities industry. Its revenue will account for 3.4%-4.8%, and its contribution will far exceed the investment grade corporate debt. In the long run, the revenue will reach 35 billion yuan and the income will account for 12%.

Fund companies are still waiting.

The issuance of pilot scheme for private equity debt of small and medium-sized enterprises has undoubtedly increased another investment channel for public funds.

However, after many interviews, the reporter found that most public funds are cautious about SMEs' private debt.

"Small and medium-sized private debt is equivalent to the Chinese version of" junk debt ". Because it is concerned about the risk of default, it will choose a more cautious attitude.

Yang Delong, chief strategist at Nanfang fund, said.

Societe Generale Global Fund Manager Yang Yun also believes that the private debt of small and medium enterprises will take an attitude of concern, and decide whether to participate in accordance with the needs of the market.

If the high yield corresponds to the inevitable high risk, how to prevent the default risk of private equity in SMEs will become an important issue before us.

Yang Delong said that since the exchange did not stipulate the net assets and operational capacity of the private debt issuers of SMEs, it was necessary to conduct research on the debt issuance themes, operating conditions and solvency of the issuers when choosing private debt varieties, and to form an analysis report, and closely follow the company's relevant circumstances at any time, so as to pfer the bonds before the risk arises, and minimize the losses after the occurrence of risks.

Yang Yun believes that investing in small and medium-sized private debt is the key to diversification of risk. We must pay attention to the proportion of investment.

Although most fund companies have expressed a cautious attitude towards SMEs' private debt, some fund companies have begun to study because of their high returns and emerging products.

"Since China starts to develop its high-yield bond market, many institutional investors, including fund companies, will rely on their own investment scent to explore investment opportunities," said Wang Jian, deputy director of Finance Department of Morgan Stanley.

The fund company is preparing related products, according to a securities brokers who do not want to be named.

This is not seen in the fund industry.

Another market personage revealed that the fund company's special account products showed considerable interest in private debt of small and medium-sized enterprises.

Bank or future main force

According to the guidelines issued by the Shanghai Stock Exchange (SME) on private equity business (Trial), commercial banks, securities companies, fund management companies, trust companies and insurance companies can invest in private equity bonds. From the current point of view, Bank of China may become the main purchasing power of private debt in small and medium enterprises in the future.

Like the fund companies, most banks are cautious about the private placement of SMEs.

A large state-owned bank researcher told reporters that although commercial banks are the main force of the inter-bank bond market, some banks are cautious about the private debt of SMEs in the short term because of the internal wind control and other reasons.

But Lu Zheng commissar, chief economist of Societe Generale, pointed out that market interest rates are constantly falling. Financial instruments such as bonds, bills and other instruments serve as financial targets. It is hard to satisfy customers' investment and financial needs, and the rate of private debt of SMEs is relatively high, which provides a new choice for bank financial products.

In the view of Lu commissar, in the investment field of small and medium-sized private debt, commercial banks have a natural advantage over trust companies.

"Small and medium-sized enterprises that can approve the issuance of bonds through the SFC may well be the existing customers of banks, and even have had credit cooperation with banks before. Banks can analyze the credit and solvency of the debt issuing enterprises through credit reporting, financial flow and other indicators.

As long as we can effectively control the credit risk, banks are fully motivated to design small and medium-sized private debt into a good financial product.

Lu political commissar said.

One of the top brokerages in China also agreed that financial products would become the biggest buyer of SMEs' private debt. However, due to the launch of the business, the company is still on the sidelines.

Coincidentally, the investment bankers of a well-known brokerage firm in Shanghai also expressed the same attitude to reporters yesterday.

Zhong Gong Di, vice president of China integrity information, said that the current interest rate ceiling is very high, set at 3 times the loan interest rate. If calculated by 6.5%, the yield will be nearly 20%, which is quite attractive.

At present, the corporate bond yields can reach 9%, which is already very high, and almost 10% of them are not.

"Bank financial products are more open than banks themselves.

Products should be a big buyer. "

The bank's financial products have bought many trust products, and the yield of trust is generally maintained at around 13%.

Three risks should not be ignored.

High yield is bound to be accompanied by high risk. This is the prevailing view of the market for SMEs' private debt. Specifically, the SME private debt will face three major risks of cash, liquidity and morality in the future.

The core of the high risk of private debt is credit risk, that is, there is a risk that maturity can not be realized.

The financial situation of small and medium-sized enterprises may not be so good, and the cash flow may not be so stable. The bonds need to repay their principal and interest each year, and there may be a risk of not paying interest at maturity.

Besides, there are a lot of risks, such as interest rate risk, market risk and cash flow risk.

Niu Wen, a bank analyst, points out that all investors face the same risk in the process of investing in private equity, and they all need to face the risk of final payment of bonds.

To prevent this risk, banks and trust companies must spend a lot of energy on basic investigation of the issuing enterprises. At the same time, professionals are required to evaluate the survey results and give investment guidance advice.

Because the SME private placement issuers are very broad, there will be a large number of enterprises seeking to issue bond financing after the pilot starts. This will directly lead to a very large investigation cost of qualified investors. In the face of high cost investment, whether banks and trust companies are willing to pay for the 10% guaranteed investment safety is still unknown.

Besides core payment risk, liquidity risk may also hinder the development of private debt in small and medium-sized enterprises.

The "pilot approach" stipulates that private equity bonds can not be traded on the exchange, but through the Shanghai Stock Exchange's comprehensive electronic platform for fixed income securities and the Shenzhen Stock Exchange comprehensive agreement trading platform, or the pfer of securities companies.

A trust industry said that private equity and private equity in small and medium enterprises would be difficult to compete with stocks in terms of corporate quality, regulatory requirements, information disclosure, market awareness and acceptance.

Therefore, from the point of view of liquidity management tools, it is better to use stock instead of using the SME private debt to carry out liquidity management.

In fact, some trust companies have also realized this. Some people in trust companies say that the frequency of private debt pactions is relatively low, and small plate private debt is hard to calculate daily net value.

Therefore, the so-called liquidity design of SMEs' private debt may be just a display.

In addition, moral hazard is also worth the concern of regulators.

Niu Wen told reporters that in order to control the risk of private equity in a certain risk bearing body, the regulatory authorities can control the risk of the private equity market by raising the investment threshold, allowing only qualified investors to enter the market, but this part of the qualified investors is also playing multiple roles.

"Taking banks as an example, banks and bank financial products are all qualified investors of private debt, which can be traded in this market. This may lead to moral hazard such as hand in hand pactions. However, from the point of view of the system, the regulatory authorities have not issued reasonable precautionary measures. Through buying financial products or trust products, the small and medium investors who participate in the private equity market will not only face the risk of the bonds themselves, but also deal with the moral hazard that may arise due to institutional defects."

Niu Wen emphasized.

Moral hazard also exists in underwriters. A joint venture brokerage executive said that because of monopolistic underwriting by brokerages, banks and bank financing products may not be actively purchased and trust companies will not participate.

In the future, the development of securities asset management business may occur, and the pformation of business departments will be carried out, and a large number of funds will be raised to buy private debt to complete the self cycle.