Solving corporate financing problems when resuming work and production
Zhu Jigao Sun Jianhua
(Source: "China Financial News" 2020-04-21 Page 5)
Guide enterprises to rationally use debt and equity financing tools; financing policies should not only consider the short-term financing needs of enterprises, but also meet their long-term financing needs; financing policies should support leading enterprises and also benefit small, medium and micro enterprises,The current domestic epidemic situation continues to improve. On the premise of consolidating the results of epidemic prevention and control without relaxing, accelerating the resumption of work and production of enterprises is the focus of the current work.
During the epidemic prevention and control period, the production and operations of most enterprises have been at a stagnant or semi-stagnant state. Moreover, enterprises are facing increasing uncertainty in the external environment, and the pressure on the capital chain has suddenly increased. It is very urgent to provide financial assistance to enterprises with operating difficulties through external financing. The meeting of the Political Bureau of the Central Committee held on March 27 proposed: "We must give full play to the leading role of financial policies such as re-lending and rediscounting, and deferred loan principal and interest payments, clear the transmission mechanism, alleviate financing difficulties and expensive financing, and provide precise financial services for epidemic prevention and control, resumption of work and production, and the development of the real economy." The government's various preferential financing policies are also accelerating the introduction and implementation. Taken together, there are three key points that need to be grasped to solve the problem of corporate financing difficulties.
Guide enterprises to rationally use debt and equity financing tools to prevent and control high-leverage financing risks
Financing in China’s financial market is dominated by bank credit. Bank credit is the most commonly used and most important financing tool for enterprises. Since the outbreak, the People's Bank of China, the China Banking and Insurance Regulatory Commission, the Ministry of Finance, the National Development and Reform Commission and other departments have introduced a number of support policies to provide preferential loan funds to enterprises. In order to solve the problem of "loan difficulties", various ministries and commissions require that enterprises affected by the epidemic must not blindly withdraw loans, cut off loans, suppress loans, or postpone loans. Financial institutions must actively adopt loan extensions, renew loans without principal repayment, reduce or waive overdue interest, and adjust repayment periods to fully support enterprises. At the same time, to reasonably increase the scale of credit loans and medium- and long-term loans, the People's Bank of China has successively introduced a series of policies such as RRR cuts, special re-loans to support anti-epidemic guarantees, and re-loans and re-discounts to support the resumption of work and production. To address the problem of "expensive loans", the main thing is to reduce loan interest rates, and the central and local finances will provide certain interest discount support for loans to enterprises related to epidemic prevention and control.
In addition to bank loan financing, the bond market also provides companies with a variety of financing tools, including corporate bonds, corporate bonds, medium-term notes and short-term financing bonds. During the epidemic prevention and control period, regulatory authorities established a "green channel" for registration and issuance of bonds by companies affected by the epidemic, simplifying relevant procedures and smoothing channels for corporate debt financing.
However, from the perspective of reducing leverage and preventing risks, corporate financing cannot only rely on debt financing, but should also fully connect with multi-level capital markets, expand equity financing channels, and reduce corporate financial leverage and financial risks. At present, China has established a multi-level capital market including the main board, small and medium-sized board, GEM, science and technology innovation board and new third board. In order to better respond to the epidemic, government departments have introduced a series of preferential policies, and various reform measures in the capital market are also being implemented at an accelerated pace. For example, on March 1, the revised "Securities Law of the People's Republic of China" was officially implemented, requiring the implementation of a "registration system" for equity financing and lowering the threshold for equity financing. The progress of capital market reform can be further accelerated so that more companies can enjoy the dividends of capital market reform. In short, it is necessary to guide enterprises to rationally use financing methods such as bank loans, debt and equity, reduce financing costs and financing risks, and improve corporate financing efficiency.
In addition to considering the short-term financing needs of enterprises, financing policies must also meet the long-term financing needs of enterprises and prevent maturity mismatch
In the context of responding to the short-term impact of the epidemic, addressing the urgent needs of enterprises, meeting their short-term capital needs, and preventing the breakage of the capital chain are the first issues to be considered in the introduction of financing policies. Help enterprises meet their short-term funding needs through short-term bank loans, short-term financing bonds and other financing tools, which is both convenient and cost-effective. It should be noted that when the epidemic breaks out at multiple points in foreign countries and the external environment of enterprises is seriously uncertain, short-term financing preferential policies must establish long-term mechanisms to cope with the needs of normalized epidemic prevention and control, maintain the stability of the policy, and adjust according to the dynamic development of domestic and foreign epidemics.
As the resumption of work and production continues to accelerate, companies will continue to increase investment in fixed assets and research and development, leading to a sharp increase in demand for long-term funds. The introduction of financing policies must be based on the long term and coordinate the short-term financing needs and long-term development needs of enterprises. For the capital needs related to enterprises' participation in new infrastructure construction projects, it is necessary to combine the construction progress and investment cycle to support enterprises to apply for medium- and long-term loans and corporate bonds with a long issuance cycle, or support enterprises to apply for equity financing such as IPO, rights issue and additional issuance in the stock market. It is necessary to strictly prevent enterprises from increasing investment and financing risks due to the mismatch between short-term financing tools and long-term investment decisions, and strive to solve the problem of "short-term loans and long-term investments" caused by the mismatch of corporate financing terms.
Financing policies should support leading enterprises, also benefit small, medium and micro enterprises, and support the transformation and upgrading of enterprises
For a long time, commercial banks have preferred large enterprises and state-owned enterprises in credit financing, and their support for small, medium and micro enterprises with greater risks has been obviously insufficient. The State Council executive meeting held on March 24 requested: "Promote new loans to more support small, medium and micro enterprises that have obtained loans for the first time" and "encourage large enterprises and leading enterprises to use the financing obtained to pay cash to upstream and downstream small, medium and micro enterprises in the form of advances and other forms to promote common development." This points out the direction for the current supply-side reform of the financial industry.
For small and medium-sized enterprises, in addition to providing credit financing support, it is also necessary to lower the capital market access threshold to allow more small and medium-sized enterprises to obtain direct financing. It is necessary to price corporate risks through the capital market, effectively allocate financial resources with different risk preferences, and give full play to the role of the capital market in serving the real economy. In October 2019, the China Securities Regulatory Commission launched a new round of reforms on the New Third Board for small and medium-sized enterprises, including improving the stratification system and the board transfer system. The reform of the hierarchical system and the board transfer system has provided equity financing facilities for the majority of small and medium-sized enterprises and opened up a new growth model. More importantly, the high-tech orientation of the Science and Technology Innovation Board and GEM is conducive to incubating the technological innovation of enterprises, enhancing their independent research and development capabilities, injecting new momentum into accelerating the construction of new infrastructure and better building a platform economy, and ultimately achieving high-quality development of enterprises. In addition, it is necessary to give full play to the risk preference and equity financing characteristics of venture capital, and introduce policies to support venture capital funds to actively invest in emerging industries such as intelligent manufacturing, unmanned distribution, online consumption, and medical health, to help small and medium-sized enterprises realize industrial digitalization and digital industrialization transformation.
(Author’s affiliation: w88 casino)
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