Bonds Mar 23

Hubei firm completes first interbank bond swap  

Company at centre of outbreak does first corporate bond swap on China’s interbank bond market

by Chris Gill
Hubei firm does first interbank bond swap  
Huachangda is located in Hubei near the centre of the coronavirus outbreak. Photo: Hubei govt.

(ATF) The first corporate bond swap has taken place on China’s interbank bond market, Moody's rating agency has noted. 

The terms of the swap offer between bond issuers and their holdings vary widely, so this and similar deals are seen as a test for investors.

Huachangda Intelligent Equipment Group, headquartered in Hubei, became the first company to replace early adopter debt. On March 18, Huachangda announced the replacement of corporate bonds totalling 239 million yuan, with a new coupon rate of 8.5% and a bond maturity of one year.

The company is based in the centre of the Covid-19 outbreak.

A total of two holders' "return receipts" were received during the bond swap offer period, with a replacement amount of 15.54 billion yuan and a success rate of 64.86%. The remaining bonds that have not accepted the replacement offer will be repaid. The old bonds will be swapped with a new issue of 239 million yuan, a coupon rate of 8.5%, a replacement period of one year.

Under the pressure of debt maturity, what companies choose – whether to implement bond swaps, bond rollovers, or borrowing new debt – is a test for investors and issuers, Sina Finance noted.

For example, Tianjin Real Estate Group's debt restructuring plan includes the option of redeeming the principal of four overseas bonds at different rates and replacing them with new bonds with lower coupon rates and longer maturities. Qinghai Investment Group's average discounted principal for maturing bonds is about 60%. In contrast, Beijing Sander plans to replace existing bonds with new ones at a 1:1 replacement ratio and a higher coupon rate of up to 50 basis points.

Shenzhen Stock Exchange announced that due to the Covid-19 crisis, bond swaps will be a useful instrument to maintain stability.

It said: "The smooth launch of the corporate bond-swap business fully draws on the experience and practices of international bond swap on the one hand, and takes advantage of the equality and flexibility of bond swaps.

"In accordance with special circumstances, we have formulated convenient and efficient procedures for the bond exchange business, coordinated with intermediary agencies of all parties, promoted the timely implementation of the plan, and actively guaranteed the timeliness requirements of the business."

Source: 21st Century Business Herald/ Sina Finance