Targeting Sophisticated Investors—Private Placement Bond
When Shenzhen Coolead Industry Co. issued the first SME private placement bond in China at the Shenzhen Stock Exchange in June 2012, a new outlet for SME financing was opened. As a financing tool targeting more sophisticated institutional fund providers, the private placement bond brought in a large amount of additional funding to the SME community. In a matter of only one year, 177 private placement bonds with a combined value of RMB 21.3 billion were issued. However, just as with any other type of debt financing, default risk is always on the other side of the coin. Since these private placement bonds were typically issued at 2–3 year terms, there were many concerns regarding their timely repayment as they approached maturity; in fact, as of the end of 2014, 11 of the private placement bonds issued were indeed declared to have defaulted, incurring a total default amount of RMB 538 million at a default rate of 2.26 %.