MOST IMPRESSIVE MARKET INNOVATION
Coronavirus-prevention bonds
This year will go down in history for fundamentally changing the way people live and work, at least temporarily.
It was the year that international relations, healthcare systems, trust in governments and social bonds were tested. It will be the year to see the deepest global economic recession since the Second World War, and a year marked by extreme swings in the bond, commodity and stock markets globally.
China, where Covid-19 first hit, drew criticism for its initial handling of the outbreak. But the country was the first to show the world it is possible to bounce back quickly with a strong government response. China also showed how crucial having a fully functioning capital market is to help governments, financial institutions and corporates raise funds to mitigate the impact of the pandemic.
Between January and March, the height of the pandemic in the Mainland, new domestic bond sales rose 14% year-on-year. Corporate bonds topped Rmb3tr, with net new financing of over Rmb1.7tr raised — both of which were historic highs. Privately-owned enterprises (POEs), the most impacted by the pandemic, sold 50% more bonds versus the same quarter in 2019. Net new financing of Rmb93bn was at a three-year peak.
This growth was propelled by the Chinese regulators’ push for the capital markets to support the real economy – and the use of a new type of debt instrument, anti-pandemic bonds or coronavirus-prevention bonds.
Chinese issuers sold over Rmb400bn of Covid-19 related bonds in February and March, with the proceeds used to fight the pandemic.
The trend started with the policy banks, hospital builders and pharmaceuticals companies, but soon caught on with commercial airlines, automobile manufacturers, food suppliers, local government financing vehicles, securities houses and issuers from many other sectors. Even Panda issuers such as Hengan International and Xiaomi Corp, and multilateral development banks like the Asian Infrastructure Investment Bank and New Development Bank, sold deals with a Covid-19 label in China.
The deals spanned private placements, short-term commercial paper, medium term notes, corporate bonds and asset-backed securities, printed across the interbank and exchange markets. The Chinese Ministry of Finance even rolled out its own Rmb1tr Covid-19 special treasury bonds in response to the crisis.
While such deals slowed down as the outbreak eased, supply did continue to trickle through in the following months. By the end of September, volume of Covid-19 bonds onshore reached Rmb538bn.
The China Securities Regulatory Commission and the National Association of Financial Market Institutional Investors played a crucial part in promoting these bonds, setting up ‘green channels’ for faster and easier registration and approval. Registration only took 48 hours for some short-term deals, versus the usual two weeks to a month.
The regulators’ approach was not perfect. For example, to encourage the use of the bond market for Covid financing, China only required a minimum 10% of the proceeds of Covid-labelled deals to support pandemic related businesses. Such a low bar raised questions about how many companies had genuine needs to sell Covid-linked deals, with some potentially exploiting the label to take out old debt at lower costs. There were also fears that the label gave sub-standard issuers access to the bond market, raising worries about high default risks in the future.
Nevertheless, China deserves kudos for demonstrating that its capital markets remained firmly open in a time of crisis. Its Covid bonds were followed by a spate of international pandemic-linked bonds globally from corporations, sovereigns and financial institutions as they turned to capital markets to help support their relief efforts.
PERSON OF THE YEAR
Yi Huiman, China Securities Regulatory Commission
Before being appointed as head of China’s top securities regulator in January 2019, Yi Huiman was a veteran at Industrial and Commercial Bank of China, the world’s largest bank by assets. Yi spent over three decades at the lender and left as its chairman of the board.
Fifty-six-year old Yi is one of the most influential Chinese bankers, but when he was appointed as chairman of the China Securities Regulatory Commission (CSRC) nearly two years ago, he had some big shoes to fill.
His predecessor Liu Shiyu, former chairman of Agricultural Bank of China, helped the country navigate through the aftermath of the 2015 stock market crash. Liu, who later came under investigation by the country’s anti-corruption watchdog, was also an outspoken critic of sprawling financial conglomerates for their reckless borrowing and overseas acquisitions, and a reformer who was harsh on financial crime.
But Yi has not disappointed. In his two years so far as the CSRC chairman, he has kick-started Shanghai’s sci-tech innovation board, otherwise known as the Star market, and led reform at the startup-focused ChiNext board in Shenzhen.
Under Yi’s leadership, the CSRC proposed and launched numerous measures to open up the Chinese financial markets, implemented the new Securities Law, eased domestic equity fundraising and corporate bond issuance rules, and continued to boost connectivity between the onshore market and that in Hong Kong and beyond. More impressively, much of this was achieved when the global pandemic was pressuring the Chinese economy and its financial market.
Perhaps the most noticeable development this year was the CSRC’s renewed focus on improving the quality of listed companies and the crackdown on financial fraud.
Yi and the CSRC have repeatedly voiced a zero-tolerance stance on financial market crime, promising to deal “heavy blows” to those found guilty of fraudulent behaviour and other violations. For the first eight months of 2020, the CSRC launched 43 investigations into information disclosure violations by listed companies, and handed over 20 of them to law enforcement, data from the regulator showed.
Since Yi took over, the CSRC has handed out stiff penalties on firms like Kangmei Pharmaceutical and Kangde Xin Composite Material Group, in what were considered to be the most high-profile financial fraud cases in the history of the A-share market. Its six-month IPO sponsorship ban on GF Securities for its involvement in Kangmei’s fundraisings was also among the harshest punishments seen in China.
In the Luckin Coffee fraud, the CSRC condemned the company in a strongly worded statement immediately after it admitted to fabricating its sales record. The regulator worked closely with the Ministry of Finance, the State Administration for Market Regulation and US regulators on the case. It launched its own investigation too, handing out penalties to Cayman Islands-incorporated Luckin’s Mainland-based related companies and individuals.
The regulator also reacted quickly following a recent high-profile domestic bond default by state-owned Yongcheng Coal and Electricity Group, stepping in with a swift investigation to help calm the market.
Yi still has more challenges to tackle. He is expected to push ahead with a plan to implement a registration-based IPO system in the two main boards in China, lead a delisting reform, and perhaps dramatically change the landscape of the domestic capital markets by handing out securities licences to commercial banks.
He is also facing heat from the US. With the country threatening to delist Chinese companies from American stock exchanges, all eyes will be on how Yi diffuses the situation. His track record so far shows he is up for the challenge.