Dacheng Attorneys Assist in Filing of First Re-guaranteed Collective SMEs Private Placement Bond Issue

Recently, Dacheng’s Hangzhou-based attorney Zhao Chaopeng and his team, whiling working jointly with China Securities, successfully assisted Beijing China-Honor Building Materials Co., Ltd. and Tianjin China-Honor Building Material Marketing Co.,Ltd. in filing for SMEs collective private placement bond issue for 2013. On December 11, the two companies received notices of approval from the Stock Exchange of Shenzhen on the issue, which was scheduled to offer RMB200mln worth of bonds at an interest rate of 7.5%. So far investors have signed subscription agreements and fund will be injected by stages at the demand of the issuers.
 
The issue is groundbreaking in two ways. On the one hand, this is the first time two companies collectively filed with the Stock Exchange of Shenzhen and together planned fundraising with a combined size of RMB200mln via SMEs private placement bond issue. On the other hand, re-guarantee as a means for credit enhancement is first adopted. In this case, Guangdong Joint-Share Financing Guarantee Investment Co., Ltd. would provide credit guarantee for the bonds under unlimited joint and several liability, and at the same time, Shenzhen Small & Medium Enterprises Credit Financing Guarantee Group Co., Ltd. would re-guarantee the aforementioned guarantor in terms of the agreed guarantee obligations and joint and several liability for eligible bondholders. Due to the absence of laws and regulations on re-guarantee, the attorneys were propelled by the Exchange to issue additional legal opinions distinguishing re-guarantee as a new form of commercial credit enhancement and government-backed re-guarantee, and disclosing potential legal risks.
 
The filing for this SMEs private placement bond issue reveals the divorce between China’s legislation and the actual needs in the economic life. We hope lawmakers will act to integrate re-guarantee as a new form of commercial guarantee into the existing Guarantee Law, as so to satisfy the needs of the on-going financial innovation and protect the fruits of our financial reform.