Short-term Financing Bills
For the purpose of promoting development of capital market and expanding financing channels for enterprises, Measures for Administration of Short-term Financing Bills, Rules for sale and trade of Short-term Financing Bills and Rules for information disclosure of Short-term Financing Bills, which were formulated by the People's Bank of China, have run into operation since May 23, 2005.
Until now, Chinese enterprises have issued about RMB 150 billions. Outside analyst estimate in the year the issue of Short-term Financing Bills (SFB) will exceed RMB 400 billions.
What is Short-term Financing Bills (SFB)? Short-term Financing Bills mean the bills issued in bond market by Chinese enterprises and agreed to pay off the principal and its interest on an agreed schedule, according to Measures for the Administration of Short-term Financing Bills and other laws. The issuing enterprise must have an independent legal entity under Chinese law.
In developed countries, the financing bills issued by companies in bond market are a simple tool or alternative for financing in special season, such as before Christmas. In 1987, the china government once permitted enterprises to issue SFB temporarily. In the year of 1993, the State Council promulgated Statute on Management of Enterprise Bonds and put very strict requirement on the issuing enterprise. In fact, only some dinosaur companies can satisfy the requirement and issued their bonds. After Asia finance crisis, all enterprise bonds, including SFB, is stopped to issue.
Now, according to Measures for Administration of Short-term Financing Bills, the issuance and bargaining of SFB shall be subject to the supervision and administration of the People's Bank of China (PBOC). SFBs shall be issued and traded only in the inter-bank bond market. The risks of SFBs shall be assumed by the investor itself.
The enterprises applying for issuing SFBs shall meet the following fundamental conditions:
(1) legally standing in PRC;
(2) have steady capital source for repayment, and make profit in recent account year;
(3) have good capital fluidity, and the capacity to repay on schedule;
(4) the money financing from issuing SFBs shall be used to production and management of the enterprise;
(5) have not any illegal or serious wrongful act in recent three years;
(6) have not any delay to the principal or its interest about SFBs which issued in recent 3 years;
(7) have a sound system of internal control and good administration mechanism of utilization and repayment about financing fund;
(8) other conditions as provided for by the People's Bank of China.
The issuing enterprise shall send and put on records the following application materials to PBOC via its main underwriters:
(1) a written recorded report on issuing SFBs;
(2) the decision by its board of directors to agree to issue SFBs, or document with the same legal effect;
(3) a letter of recommendation by its underwriters (and a due diligence report);
(4) a specification which shall explain how the SFBs will finance (and an issuing scheme);
(5) a full text of credit report, and an explanation on evaluating, ranking and tracking;
(6) full texts of balance sheet, profit and loss sheet, cash fluid sheet and audit report in recent account years which have been audited by certified public accountants.
(7) a legal report by Chinese lawyers (with a lawyer working report);
(8) a special report on repayment plan and other guarantee measures;
(9) an analysis report on the cash fluid used for repaying the principal and its interest of SFBs;
(10) underwriting agreements and underwriting group agreements;
(11) a copy of business license;
(12) other items required by the People's Bank of China.
After received application materials and counted from the received day, if requirements be satisfied, in 20 working days PBOC will give a notification of record to the applicant and ratify the ultimate sum to issue.
