OREANDA-NEWS. May 30, 2013. As time past by, the world has been changed. With the continuous development and improvement of domestic capital market, the bank-enterprise relation linked by financing at the core is being challenged. Now, in the aspect of obtaining funds, not only large corporate customers launch a number of debt financing tools in succession, some SMEs with high credit rating also have more choices beyond the banking channel.

Moreover, in addition to financial disintermediation, the banking circle has already sensed more ruthless operation pressure with the accelerated development of market-oriented interest rates in China. It is pressing to make adjustment to strategies. Besides trying hard to maintain large enterprises that are always the preferred targets, it is also a wise choice in a general sense to attract SMEs who boast greater business flexibility.

As shown in the questionnaire survey launched by China Banking Association (CBA) and Price Waterhouse Coopers over more than 800 bankers, all banks will accelerate their transformation in 2013. Specifically, loans to small-sized enterprises will remain a key area for corporate finance. In addition, 40% of the bankers choose to push their own strategic transformation by “achieving characteristic integrated business operation”.

Of course, the set direction also requires powerful competition weapons. The “Open Sesame–SME IPO Program” (“Open Sesame Program” for short) released by Industrial Bank (IB) is an innovative business model which combines the convention and emerging business models. To a large extent, now the idea of IB also represents a kind of tide and tendency that domestic medium-sized banks seek integrated business operation.

Changing Based on the Actual Situation
Company A is an enterprise possessing the production process and technology of outdoor bamboo recombinant. After the product developed by it passed the European Environmental Evaluation and Certification, the company planned to carry out batch production. Nonetheless, it was hard for it to receive financing support from banks as it didn't have any incomes from its development in the early period and it only held limited assets.

As a commercial bank that has long paid attention to Company A, IB had an in-depth understanding to its industrial prospect and technological strength and had provided equipment-pledged loan in small amount when the company was still in the early start-up period. In order to settle its development problem, the bank proposed to introduce equity investment and helped it to attract the capital contribution of RMB 15 million from a listed company engaging in forest products in the form of shares in the province. The latter also provided a bamboo forest base of 30,000 mu for Company A to produce raw materials.

With the first successful attraction of investment, Company A not only realized batch production of outdoor bamboo recombinant, but also witnessed considerable profits with 80% of its products being exported to Europe . Then, in order to extend its production scale and grasp market shares, Company A made preparation for the second attraction of investment. With IB serving as the go-between, the above shareholder company and a PE fund invested RMB 30 million to Company A. Thus, it obtained the input capital for workshops and equipment, and in the next year, it witnessed nearly doubled profits, stepping onto the track of fast development.

Company B is a hi-tech enterprise specialized in the R&D, production and sale of regenerative medical materials and regenerative medical implantable devices, which has undertaken many national, provincial, municipal and military programs for science and technology development and holds dozens of patents and patent applications both at home and abroad.

As a commercial bank in cooperation with the company for years, IB was very familiar with its business performance. To put it simply, Company B has entered into the period of fast growth after accomplishing capital accumulation. It was inevitable for it to go public. However, Company B behaved very slowly in launching its IPO campaign.

After paying a visit to the company, IB got the following information. Originally, Company B put on the agenda going public for financing as early as 2010. However, as it invested a great deal of energy into technological R&D and market extension and knew little about the IPO policies and platform, it was at a loss in confrontation with a motley crowd of intermediaries and complicated procedures. As a result, it laid its IPO plan aside.

Based on internal analysis, IB believed Company B possessed the basic conditions for IPO in terms of current assets, business performance, development potential and corporate governance structure. Thus, the bank further worked out a special integrated financial service solution for its IPO according to the business performance and actual demands of Company B. Specifically, while integrating the conventional indirect financing tools including a number of credit businesses, the bank also introduced direct financing services of investment banking such as IPO planning, private equity financing and financial consultant.

After Company B recognized the foregoing “special solution”, the two parties entered into a “Financial Consultation Agreement”. Then, IB got, in depth, involved into the company's selection of intermediaries, finance and tax planning, formulation of general IPO steps, and establishment of IPO schedule and financing scale. Now, the company's IPO application for GEM board has passed the examination of CSRC smoothly. IB is preparing to work out the service solutions for the use, management and alteration of funds raised by Company B after its successful IPO, and provides the services of investment project, cash management and wealth management.

Based on the above two cases, facing the SME customers at different growth stages and a variety of complicated financial demands, IB seems to find the transformation direction of a commercial bank besides the conventional credit means. The “Open Sesame” program which attracted Companies A and B is a leading product that the bank exerts itself to promote.

Shoot Multiple Hawks with One Arrow

It is reported that the “Open Sesame” of IB was released in June 2010, targeting at helping outstanding SMEs to grow until IPO. It provides one-stop financial service solutions integrating “creditor's right + stock right + IPO” according to the demands of enterprises for financial services at their different stages of growth.

“Namely, the investment banking and conventional banking products are integrated and arranged flexibly considering the financing demands of enterprises in the capital market and indirect financing market.” As indicated by the relevant office-in-charge of IB, the program is a measure of the bank against the challenges of commercial banks seeking transformation for development, and “in fact, we devote ourselves to building a financial processing plant for the IPO of SMEs”.

To be specific, the “Open Sesame” Program, centering on the IPO of SMEs, is to provide customized financial service schemes for SMEs at different stages of growth, namely start-up, growth and maturity, across many fields including direct financing, indirect financing, and cash management, etc. In addition, the program creates nine special financial service schemes including comprehensive IPO, aggregate debt financing, private equity investment, specialized market finance and supply chain finance, which cover corporate financing, capital operation, development planning, wealth management, and corporate governance, etc.

In summary, no matter at which stage of growth the SMEs “selected” remain, what financial and non-financial demands do they have, and whether the own resources of IB can provide direct solutions, its “Open Sesame” Program seems to provide a solution easily.

In addition to product design and vision, we might as well see the effect of the bank's leading product. Based on the mid-year report of IB in 2012, by the end of the report year, there have been 3,560 customers pooled in the “Open Sesame” Program, increasing by 685 compared with the beginning of the period. Of them, 101 customers have successfully launched their IPOs, 214 introduced private equity, and 54 issued bonds. The deposits of IPO-raised funds attracted by the bank exceeded RMB 11.2 billion.

Apart from the direct contribution to financial data, in promoting the “Open Sesame” Program with great efforts, IB aims to create a multi-win situation and shoot multiple hawks with an arrow: sharing the gains brought about by the growth of SMEs, cultivating a group of outstanding strategic basic customers and “host bank” customers, increasing the market shares in various SME-related businesses, building the service brand of the bank for SMEs, and even pushing the bank's corporate finance business to realize the transformation of business development and profiting models.

In fact, not merely IB does so. Under the current business environment, most banks which are accelerating their transformation set their focus on outstanding SME customers. For instance, under the strategic guidance of “second transformation”, China Merchants Bank (CMB) put forward the “Wings for 1000 Eagles Program for Cultivating Innovation-oriented Emerging Enterprises” in 2010. In terms of business measures, CMB also combines direct financing and indirect financing based on the characteristics of enterprises at different stages of their life cycle, providing all-sided integrated financial services and a range of innovative financing products to target customer groups, which are similar to those of IB.

Moreover, according to the mid-year report of CMB in 2012, the “Wings for 1000 Eagles Program” has 5,334 innovation-oriented corporate customers since its launch, up by 64.68% over the end of last year. Specifically, since 2011 there have been 93 of the corporate customers of the “Wings for 1000 Eagles Program” getting listed at the SME board or GEM board and opening escrow accounts for IPO fund-raising in the bank.

Nonetheless, in the eyes of the insider, the situation where domestic banks compete for SMEs at present will not fall into malicious competition. “It is still in the process of exploring market and making a big cake, but those banks who can make sustained innovation and take active measures will seize the initiative in the market”.

Decode financing

Under the general trend of integrated business operation across the finance industry, commercial banks have launched business model innovation combining both conventional and emerging ones. Besides the simple conventional financial services dominated by loans, centering on the main line of SME IPO, banks also provide diversified financial services covering funds settlement, debt financing, equity financing, capital operation, development planning, wealth management, and corporate governance by fully maneuvering the investment banking service tools in combination with the different production and business features of enterprises at the different stages, namely start-up, growth and maturity.