DEBT REDUCTION FINANCING ASSET MANAGEMENT PALN

Business > Debt Reduction Financing Asset Management Plan

The high debt ratio of large state-owned enterprises and listed companies is not only easy to cause financial risks, but also to increase operational risks. The high debt and high-risk operation of enterprises has become a prominent problem restricting the current economic development of China. On the premise of strictly preventing the loss of state-owned assets, we should constantly reduce the asset liability ratio, improve the debt structure of enterprises and continue to enhance corporate liquidity, help state-owned enterprises and listed companies out of business and financing predicament. Debt reduction financing (DRF) asset management further implements the requirements of financial services for the real economy by realizing the coordination of financing and debt reduction, and provides sustainable endogenous capital for the development of large state-owned enterprises and listed companies.

To address the problem of excessive corporate Debt, ICG launched Debt Reduction Financing (DRF) asset management plan for large state-owned enterprises and listed companies, which has the dual effect of low cost Financing and lower Debt ratio.

The DRF asset management plan tailor-made a series of financing schemes with debt reduction effect for the long-term business development of large state-owned enterprises and listed companies according to their operation conditions. The asset management plan raises medium - and long-term funds needed for the development of

enterprises through the international financial market, helps large state-owned enterprises and listed companies to enter the international market where the cost of capital is more favorable, expands the channels for enterprises to obtain low-cost funds, and finally achieves the effect of reducing the debt ratio.

Corporate debt ratio is high

Although the high debt ratio is a common phenomenon among enterprises, the performance of state-owned enterprises is particularly prominent. According to the state council's comprehensive report on the management of state-owned assets for 2018, the assets of state-owned enterprises (excluding financial enterprises) totaled 210.4 trillion yuan and their liabilities totaled 135.0 trillion yuan in 2018, with the asset-liability ratio of some soes reaching more than 80 percent.

Domestic financing costs have risen significantly

At present, the domestic macroeconomic downturn, the monetary policy is tightening, the financing cost of the real economy is rising, and the financing cost of state-owned enterprises will continue to rise in the future.

Corporate debt reduction pressure increased

In 2020, the pressure on provincial enterprises to reduce their debts will increase. On the one hand, compared with 2019, the maturities of local government bonds and urban investment bonds both increased in 2020, with 2.07 trillion yuan of local government bonds maturing in 2020 and 1.56 trillion yuan of urban investment bonds maturing in 2020.On the other hand, local government revenue declined slightly, to about 16.69 trillion yuan in 2019 and 16.93 trillion yuan in 2018.

The future situation of China's capital market is grim

The continuous adjustment of the domestic stock market and the rising default rate of corporate bonds have led to an increase in the uncertainty of the domestic capital market. The promulgation of various laws and regulations put forward higher requirements for the production and operation environment of domestic industrial enterprises. The trade dispute between China and the United States has led to a wide range of commodity price volatility that could affect the production capital chain of more Chinese companies in the future.

ICG's DRF asset management plan mainly includes the following six implementation schemes: joint factoring,joint leasing, capital increase and share expansion, debt-equity swap, SPV project financing,real estate investment trusts. Enterprises applying for financing can apply for one or more of them according to their own conditions, and ICG will finally decide whether to approve the project of the enterprises applying for financing through review.

Joint factoring

It mainly refers to the commercial factoring business based on accounts receivable jointly carried out in the mainland, Hong Kong and Macao and the regions where the supply chain subsidiaries are located and in which enterprises with financing needs transfer the unexpired receivables formed by credit sales to the factoring company to obtain low-cost liquidity support. Financing enterprises can use the available working capital to repay debts to reduce the asset-liability ratio.The joint factoring scheme mainly includes the following three financing methods, namely joint factoring (mainland), joint factoring (Hong Kong and Macao) and joint factoring (supply chain).
Joint leasing

It refers to the joint leasing business jointly carried out in mainland China, Hong Kong and Macao. The finance enterprise provides the lease item to finance the low cost working capital to the leasing company. The finance enterprise pays the interest on a regular basis and pays the principal at the end of the lease term. Financing enterprises can use the available working capital to repay debts to reduce the asset-liability ratio.The joint leasing scheme mainly includes the following two financing methods, namely joint leasing (mainland) and joint leasing (Hong Kong and Macao).
Capital increase and share expansion

Refers to the investor as a new shareholder investment into the enterprise, thereby increasing the capital of the enterprise. For financing enterprises, it means to increase the registered capital of enterprises by introducing investors as new shareholders, so as to achieve the purpose of financing without increasing liabilities.
Debt-equity swap

It is mainly through the transformation of the legitimate creditor's rights enjoyed by the creditor to the financing enterprise (debtor) into the equity of the financing enterprise, so as to increase the registered capital of the financing enterprise, realize the financing and reduce the debt.
SPV project financing

It refers to the SPV project company jointly established by investors and financing enterprises, and through the SPV project company to invest in the designated project. Through this scheme, financing enterprises can realize low-cost financing without increasing liabilities, and reduce the asset-liability ratio under the condition of project profits.
REITs

REITs, The full name of real estate investment trust fund in Chinese is an asset management plan. The plan is a way to collect the funds of most investors by applying for listing and public offering of fund shares, and to set up special purpose investment vehicles for controlling shareholders in the form of trust funds to hold full ownership or franchise of real estate, and to conduct real estate investment and management through specialized investment institutions, which shall be determined by the fund management company which allocates the comprehensive income of an investment to investors in proportion.

Debt reduction financing (DRF) asset management integrates overseas funds and domestic enterprise assets, optimizes the allocation of resources around the world, and effectively improves the value of enterprise assets. Its advantages are mainly reflected in the following four aspects:

Multiple financing options

It mainly includes joint factoring, joint leasing, capital increase and share expansion, debt to equity swap, SPV project financing and REITs ( real estate investment trust fund). Enterprises can choose one or more schemes to declare debt reduction financing (DRF) asset management plan according to their own situation.

Low cost of financing

Through the above various financing schemes, enterprises can be helped to enter the international market with more favorable capital cost, reasonably introduce low-cost funds, relieve the pressure of enterprises' financing cost, solve the problem of difficult and expensive financing for enterprises, and improve their profitability.

Reduce debt ratio

Through the above various financing schemes, enterprises can be helped to obtain medium and long-term financial support, revitalize the existing assets, optimize the debt structure of enterprises, increase the disposable funds, and help enterprises to resolve the existing debts in an orderly manner, so as to achieve the effect of reducing the debt ratio of enterprises while financing.

No need to repay the principal

In the asset management mode of debt reduction financing (DRF), in the case of REITs, real estate investment trust (REITs), financing is realized by transferring equity or franchise rights and applying for listing and public offering of fund shares. The fund shares subscribed by investors can be circulated in the market, and the funds obtained by financing enterprises do not need to be repaid.