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SMEs seek non-bank finances

By Jin Jing (China Daily)
Updated: 2008-08-01 15:14

An increasing number of small and medium-sized enterprises (SMEs) in the city are turning to non-bank options of financing as the government continues the credit tightening measures.

Among these, stake transfer in assets and equity exchange and pawning are becoming two of the hottest ways of financing for SMEs, which usually find it difficult to obtain bank loans.

Statistics from the Shanghai United Assets and Equity Exchange (SUAEE) show 926 transactions were completed in the first half, amounting to 23 billion yuan ($3.36 billion), up 211 percent from the same period last year. Of this, the stake transfer from real estate companies increased sharply, with the amount jumping nearly 60 percent to 8.9 billion yuan.

"The Shanghai United Assets and Equity Exchange is now becoming an important platform for SMEs in financing, especially for real estate companies that are feeling the pinch of the government's tight monetary policy," said Luo Xinyu, general manager of SUAEE member service department.

For example, Shanghai Lucheng Real Estate Co Ltd, under Shanghai Vegetable Group, raised over 100 million yuan by selling a 20 percent stake in Shanghai Jiucheng Properties Ltd earlier this year. Shanghai Wanye Enterprises Co Ltd also raised 137 billion yuan by transferring 10 percent of the shares of its subsidiary real estate company. Companies in IT industry also attracted 2.6 billion yuan of financing through SUAEE.

Pawning is also drawing more and more SMEs because of the simpler procedure and lower collateral requirement compared with banks, which usually favor large companies or key government projects.

"Unlike banks, pawn companies have less stipulations for financial performance of SMEs, they only care about the pawn itself," said Steven Lau, partner at Cenlaw and Partners law firm.

In addition, according to pawn industry regulations, the monthly interest should be no more than 4.7 percent and contract term no longer than six months, which meets the urgent but short-term capital demands of SMEs.

Shanghai Pawn Trade Association statistics value pawn business in Shanghai at 10.7 billion yuan in the first half, up nearly 80 percent from the same period last year. There are a total of 105 pawning companies in Shanghai, and most of their clients are SMEs.