Private equity funds for private placement have been a hot item in the fund market, with hard-to-get shares, but they have also fallen off a cliff and have not received any attention. This investment product in the first and a half-tier market has experienced sudden ups and downs in the face of multiple policy changes. Last week, after nearly three years, the new rules for private placement have undergone major changes again, comparable to a 181-degree turn, and even more relaxed than the policy before the refinancing new rules in 2017. How to interpret the investment opportunities of private equity funds for private placement? The private placement product research department of Private Placement Pai Pai Network will interpret it for you from different angles.
01
Policy drastic turn
In 2016, the financing amount of private placement in both markets was close to 2 trillion. The market uncertainty of policy is the biggest risk for market participants. In 2017, a refinancing new rule and then a reduction of holdings new rule disrupted the entire private placement market. The once-hot private placement funds were subsequently abandoned by the market. In 2017, a private placement fund called Jiutai Ruiyi encountered an embarrassing moment when 0.17 billion shares of the fund wanted to be redeemed when the redemption was allowed on the limited open day, but only 0.17 million shares were to be purchased. A large number of refinancing plans for listed companies have been shelved, giving birth to the recent booming convertible bond market. What are the big changes in the new rules for private placement compared to the refinancing new rules last time?
Changes in the focus of new rules for private placement
Latest interpretation
1. Issuance object
The issuance object has been greatly relaxed from the original no more than 10 to no more than 35, which means that under the same total amount of a single project, the amount of each individual investor participating has greatly decreased, and the participation threshold for private placements has greatly lowered. With 35 investors as the threshold, it means that as long as there are 28.57 million, one can participate in a private placement project with a previous total amount of 1 billion yuan. The group of investors who can participate has greatly expanded.
2. Issuance discount
The discount is the biggest attraction for investors to participate in private placement markets. They can obtain a large proportion of shares at a much lower price than the market price, and it has always been the biggest motivation for all participants. According to estimates, the contribution of the discount rate to the return on investment of private placement projects exceeds 50%. The issuance discount has been reduced from no less than 90% of the benchmark price to no less than 80% of the benchmark price, which means that the maximum return on investment brought by the discount exceeds 10%, making the project more attractive.
3. Lock-up period
The biggest risk of private placement funds is liquidity risk, which arises from the lock-up of shares and the inability to trade normally for a certain period of time. The lock-up period for the old rules was one year and three years, but the new rules have shortened it by half to six months at the shortest, which means that the liquidity of private placement projects has more than doubled.
4. Lifting of the lock-up period
The lifting of the lock-up period is the last step in realizing the return on investment. The reducing of holdings new rule in May 2017 stipulated that for a private placement with a lock-up period of one year, the reduction of holdings within 12 months after the lock-up period shall not exceed 50% of the private placement share capital. That is, a one-year private placement project will take at least 30 months to exit completely, and the liquidity risk has increased sharply. Under the new rules for private placement, however, the reduction of holdings is not subject to the restriction of the new rules for reducing holdings, which means that a private placement project can be sold off entirely when the shorted lock-up period of six months expires. The liquidity has increased fivefold.
02
Great interpretation of the rate of return on investment
The rate of return on investment is an important factor that investors must consider before investing. The rate of return on private placement funds is mainly affected by two factors. The first is the discount, i.e. the discount for the project price. The impact of discounts on the rate of return on private placement projects is more than 50%. The second is the performance of the private placement targets in the secondary market. Due to the existence of discounts, the rise and fall of stock prices have a relatively large impact on the rate of return. For example, if the final discount for the project is 20% off and the increase in stock price in the secondary market is 20%, the final rate of return on the private placement project can reach as high as 50%, representing nearly 30% excess return compared with the secondary market. This is the charm of private placement funds.
03
Private placement viewpoints
Kaifeng Investment:
This new refinancing policy is very important. The limitation of the asset-liability ratio of 45% in the past has made half of the GEM companies unable to refinance. Halving the lock-up period, greatly increasing the number of issuance objects and other policies are very substantial relaxations. The relaxation of these refinancing conditions not only greatly increases the number of companies that can refinance but also makes it much easier for many investors to participate in refinancing.
Kaisheng Asset:
Looking back at the history of A-share private placement, the great opportunities for private placement investment are closely related to the overall market valuation level and policy support. In 2013, the market overall valuation was low, and policy support for GEM financing and merger and acquisition was provided, which made 2013 the best year for the rate of return on private placement in the history of A-shares. Currently in 2020, the situation is quite similar to that in 2013, with the overall market valuation once again falling into a low range. The new refinancing policy released on February 14th is also more friendly to investors in terms of pricing discounts, lock-up periods, and investment thresholds. Private equity funds for private placement will become a multiplier for investors to share the returns of the capital market.
Panyao Assets:
From the perspective of seizing opportunities, if there are suitable opportunities, the company's qualified old products will directly participate in private placement projects, and Panyao private placement funds with dedicated strategies for Panyao private placement will be issued in the near future. This strategy is similar to the Sci-Tech innovation board strategy of 2019 and is a dividend of a phased system. According to the current system, stocks can be taken at an 80% discount, which can increase revenue by 20% after being locked for six months. Assuming seamless connection between two private placements throughout the year without compounding, revenue can be increased by 40% per year. If the quality of the stock chosen for the private placement is good and the stock is still rising, the product's revenue is the basis for the stock's appreciation plus 40% discount, which has significant contribution to excess revenue.
Huayan Investment:
It has also been gradually considering the layout of private placement strategy products. The reason is that although the valuation of Chinese stocks has not reached the extreme level, it has already reached a historically low level. In addition, the new refinancing rules have improved discount limits, shortened lock-up periods, lowered participation thresholds, and relaxed reduction restrictions, undoubtedly increasing the attractiveness of private placements.
04
Summary
According to the above analysis, the main changes in the implementation of the new private placement rules are changes in investor participation thresholds, project discounts, lock-up periods, and project full unblocking periods, each of which is very attractive. As of now, at least 20 listed companies in the secondary market have released announcements to modify their private placement plans. It can be foreseen that the number of private placement and refinancing projects of listed companies in the future will continue to increase, and investors' enthusiasm for participation will also be greatly enhanced.
On the private placement project side, while greatly improving liquidity, project discounts have also increased significantly, which means that private placement projects have greatly reduced risks while greatly increasing potential returns. The golden age of private placement funds has arrived!
