The first batch of VC/PE institutions "test the waters" with sci-tech innovation bonds! Suzhou has launched two Zhejiang state-owned enterprises to promote the second phase of this year.

On May 9, the Science and Technology Innovation Board Daily reported (by reporter Yang Xiaoxiao) that against the backdrop of the continuous implementation of new policies for the "Technology Board" in the bond market, the first batch of equity investment platforms "testing the waters" for science and technology innovation bonds have taken their latest actions.

According to the latest news from the China Interbank Market Dealers Association, as of May 9, a total of 9 equity investment platforms, including Lixin Chuangtou, Beijing Yizhuang Investment, Suzhou Jinhesheng Holdings, Shenzhen Investment Control, Wuxi Chuangtou Group, Zhejiang State-owned Assets Operation Company, and Anhui State-owned Assets Operation Company, have successively responded and disclosed the issuance documents for the sci-tech bonds, with a total proposed issuance scale limit of up to 4.16 billion yuan. Among them, the largest scale is 1 billion yuan from Shenzhen Investment Control; the smallest scale is 50 million yuan from Wuxi Chuangtou.

It is worth mentioning that the Zhejiang State-owned Assets Operation Company issued a phase of technology innovation bonds in January this year, and the proposed issuance scale of the second phase of technology innovation bonds is 460 million yuan, with a maturity of 5 years.

On the policy front, recently, the People's Bank of China, together with the China Securities Regulatory Commission, the Financial Regulatory Administration, the Ministry of Science and Technology, and other departments, launched the "Technology Board" in the bond market to support three types of market participants: financial institutions, technology companies, and equity investment institutions, in issuing technology innovation bonds. Among them, the news that equity investment institutions can issue bonds to raise funds with policy support has attracted widespread attention in the market against the backdrop of difficulties in fundraising for VC/PE.

From the official website of the China Interbank Market Dealers Association, a reporter from the "Science and Technology Innovation Board Daily" noticed that currently, a total of 9 equity investment platforms have disclosed issuance documents related to technology innovation bonds, all of which are state-owned investment platforms. Among them, two are from Suzhou: Suzhou Jinhaosheng Holdings and Suzhou Yuanhe Holdings. The former was jointly funded by Suzhou High-tech New Group Co., Ltd. and Suzhou High-tech State-owned Assets Operation Management Group Co., Ltd.; the latter is controlled by Suzhou Industrial Park State-owned Capital Investment Operation Holdings Co., Ltd., with a shareholding ratio of over 73%.

According to the issuance document, Suzhou Yuanhe Holdings plans to issue an amount of 600 million yuan, with a term of 3 years. The raised funds will be entirely used in the form of fund contributions to support the development of technology innovation enterprises, specifically to replace the funds ultimately invested in the fund within one year and the fund contributions. Suzhou Yuanhe Holdings stated that science and technology innovation bonds provide a new financing method, especially when traditional financing channels are limited or the cycles do not match. By issuing technology innovation bonds to attract long-term funds from the interbank market, it alleviates the fundraising difficulties faced by private equity investment institutions to some extent.

According to information disclosed by the China Interbank Market Dealers Association, 24 equity investment institutions have participated in the registration and issuance of technology innovation bonds, with an expected total scale of nearly 15.5 billion yuan. Ten equity investment institutions, including Junlian Capital, Qiming Venture Partners, Dongfang Fuhai, Yida Capital, Jinyu Maowu, TEDA Technology Investment, and Zhongke Chuangxing, have entered the registration channel, of which 7 are private enterprises, and many institutions have set terms such as interest rate jumps and conversion to shares.

A person from a state-owned background institution that has disclosed its sci-tech bond issuance plan told a reporter from the "Sci-tech Innovation Board Daily" that their institution continues to serve technology innovation enterprises, "therefore issuing relevant bonds is a relatively routine measure for us. The reason for the increased attention this time is mainly due to the overarching theme of technological innovation, as well as the inclusion in the first batch of lists."

The aforementioned Zhejiang State-owned Assets Operation Company is the state-owned background platform that issued the second phase of the Sci-tech Innovation Bonds. According to the disclosed fundraising prospectus, the main purposes of the bond issuance by the Zhejiang State-owned Assets Operation Company include:

1. Replace the self-owned capital investment for equity investment, which involves the project of Hangzhou Honghua Digital Technology Co., Ltd., with an investment scale of 570 million yuan. This project focuses on the industrial application of digital printing technology, centered around digital printing for textiles;

2. Fund investment, this section involves the fund as Zhejiang Fuzhe Shaoxin Integrated Circuit Industry Fund Partnership ( Limited Partnership ), with a total fund size of 5 billion yuan, Zhejiang State-owned Assets Operation Company has committed an investment amount of 2.25 billion yuan, with the planned investment period being May to June of this year.

It is not uncommon for state-owned investment platforms to raise equity investment funds through bond issuance. Unlike the restrictions on the issuance of bonds by general private equity investment funds, since 2013, the National Development and Reform Commission and other departments have successively introduced policies to encourage government-guided funds to issue bonds for fundraising. Therefore, the market's greater focus on this new policy for the bond market "Technology Board" is whether the issuers of bonds for fundraising will further expand to a broader range of market-oriented institutions.

There are market-oriented institutional partners that have entered the registration channel, but they declined the reporter's interview as the sci-tech innovation bonds are still being issued. Another leading market-oriented institutional partner stated to the reporter that the expansion of the issuing entities for sci-tech innovation bonds is generally beneficial for VC/PE, as it "can directly alleviate the difficulty in fundraising." When asked whether there are any upcoming issuance plans, they indicated that it would depend on the specific circumstances and needs of the institutions.

The policies related to the Sci-Tech Innovation Bonds can be traced back to 2021. In March of that year, the Shanghai and Shenzhen stock exchanges initiated the pilot program for corporate bonds for technology innovation companies, guiding high-quality enterprises to issue corporate bonds for sci-tech innovation purposes under the framework of the Double Innovation Bonds. Subsequently, in May 2022, the Shanghai and Shenzhen stock exchanges respectively released relevant guidelines, marking the official implementation of Sci-Tech Innovation Bonds.

Investors who have been paying attention to the sci-tech innovation bond sector analyzed by the reporter from the "Sci-Tech Innovation Board Daily" noted that the new policy has made "upgrades" in multiple dimensions of sci-tech innovation bonds.

"First, regarding the issuing entities, the previous pilot program had relatively unclear regulations on the scope of entities related to equity investment issuing sci-tech bonds, and in practice, it was mainly state-owned capital platforms. In addition, the use of raised funds has been clarified in more detail; during the pilot period, sci-tech bonds could only be invested in venture capital funds and government-funded industrial funds. The new policy additionally supports high-quality private equity investment institutions and venture capital institutions in issuing sci-tech bonds, allowing the raised funds to be used for the establishment and expansion of private equity investment funds, thereby increasing the flexibility of sci-tech fund usage." It further stated that the new policy is also clearer and more refined than before in terms of credit rating, circulation support, and other series of supporting measures.

According to research reports from brokerages, previously, the cumulative issuance of bonds by Sci-Tech innovation companies saw less than 1% coming from private enterprises, while central enterprises and local state-owned enterprises accounted for nearly 98% in total.

Source: Kechuangban Daily

Author: Sci-tech Innovation Board Daily