The China-Singapore (Chongqing) Demonstration Initiative on Strategic Connectivity (hereinafter referred to as China-Singapore Demonstration Initiative) has established cross-border financing channel for enterprises of Chongqing and has markedly reduced the financing cost. By the end of 2016, China-Singapore Demonstration Initiative signed and put 39 cross-border financing projects into construction, with a total investment of USD 3.22 billion, including various financing types like international commercial loans, overseas bond issuing and financial leasing.
On March 27, 2017, 11 innovation cases of financial services was jointly issued by the Administrative Bureau of China-Singapore Demonstration Initiative and several government units including Chongqing Operations Office of the People’s Bank of China, Chongqing Administrative Office of Foreign Exchange of State Administration of Foreign Exchange and Chongqing Office of China Banking Regulatory Commission. This newspaper intends to share the analysis of typical cases with readers.
Serving for the “Belt and Road Initiative” Wins Favor of All Parties
Among 11 innovation cases, Chongqing Logistics City (hereinafter referred to as CLC) has made eye-catching achievements by issuing USD 500 million of bonds in Singapore.
People in charge of CLC introduced that before the issuance of bonds, CLC not only obtained the rating of BBB from Fitch Ratings, but also held 19 investors conferences in three places, i.e. Hong Kong of China, London of England and Singapore, highlighting that CLC plays a vital role in serving the “Belt and Road Initiative” as the departure station of Chongqing-Xinjiang-Europe International Railway.
By virtue of its good reputation of serving the “Belt and Road Initiative”, the overseas bonds issued by CLC are favored by sovereign wealth funds of many countries and high-quality international funds. The proportion of subscription amount of bonds is as eight times as the amount of issued bonds, indicating that the demand has exceeded supply.
Overseas Financing Boasts a Higher “Cost-performance”
Many small- and medium-sized private enterprises has involved in the cross-border financing activity.
Chongqing Chengrun Machinery Co., Ltd. (hereinafter referred to as Chengrun Machinery) is an enterprise specialized in the manufacturing of auto parts, reaching an annual revenue of about RMB 100 million. It obtained USD 3.4 million of international commercial loans from Singapore Branch of Bank of China through China-Singapore Demonstration Initiative last December.
People in charge of Chengrun Machinery said that “The comprehensive financing cost of the international commercial loans (including the cost of lock exchange) only accounts for 4.8% instead of the financing cost between 5.7% and 6% in China, which effectively solved the difficulties and expensive cost of financing for small- and medium-sized private enterprises.”
The diversified cross-border financing channels established by China-Singapore Demonstration Initiative have strongly supported the development of transportation, aviation, mechanical and electrical manufacturing and strategic emerging industry of Chongqing.
Be in Line with the International Practice in Risk Control
Since Chongqing’s enterprises are interconnected with other countries now, it is necessary for them to integrate with the international practice. It is one of the international practices for enterprises to accept credit rating before overseas bond issuing to prevent the risk. In July 2016, Chongqing Nan’an Urban Construction & Development (Group) Co., Ltd. attracted three major international credit rating agencies, i.e. Standard & Poor’s, Fitch Ratings and Moody’s, to come to Chongqing for credit rating for the first time before its bond issuing.
Official from Administrative Bureau of China-Singapore Demonstration Initiative said that credit rating is conducive to resist the risk of cross-border financing and helps China’s enterprises to integrate into the international world better.
Besides, most of cross-border financing projects of China-Singapore Demonstration Initiative seized the opportunity of low interest rates for overseas bond issuing last year. Several projects effectively avoided the risk caused by exchange rate fluctuation by adopting Renminbi as the settlement currency... The above-mentioned official said, “It is effective in risk control of overseas financing activity for Chongqing’s enterprises under China-Singapore Demonstration Initiative.”