Targeted fundraising (full name "targeted issuance") refers to a listed company issuing new shares to qualified specific investors to raise funds. As one of the most important refinancing methods, targeted fundraising is usually used by listed companies to supplement funds, mergers and acquisitions, and introduce strategic investors.
At the beginning of 2019, China Zhongji Investment began to deploy targeted fundraising business, participated in the targeted issuance of companies such as Sitong New Materials, and achieved very good returns. After the release of the new refinancing policy in 2020, China Zhongji Investment predicted that under the overall macroeconomic situation, targeted fundraising would be an important means for the company to allocate funds to the equity market, and A-share targeted fundraising business would be a key business of the year.
As of December 10, 2020, China Zhongji Investment has participated in more than 20 A-share targeted fundraising projects with a total investment of nearly 1 billion yuan. The book return on its own funds has exceeded 40% (not annualized), and the return rate of several targeted fundraising targets has exceeded 100%. The overall performance has significantly surpassed major market indicators such as the CSI 300 Index during the same period, showing considerable investment returns.
Policy relaxation highlights opportunities in the targeted fundraising market
2020 Year 2 Month 14 Day, the China Securities Regulatory Commission officially issued a new refinancing policy, loosening the targeted fundraising market from both the supply and demand sides in eight dimensions, and requiring that new issuance plans and all existing projects must be implemented in accordance with the new policy. Among them, the most relevant to institutional investors participating in targeted fundraising are 4 items: Shortening of the lock-up period; The number of issuance objects is increased to 35 names; The discount on the floor price is increased from 90% to 80%; After unlocking, any number can be freely sold without batch reduction.
The implementation of the new refinancing policy means that the liquidity of targeted fundraising has greatly increased, the amount threshold for participating in targeted fundraising has been reduced, and the certainty of obtaining excess returns has been significantly improved, making it very suitable as a supplementary means for companies to allocate funds to the equity market. In addition, China Zhongji Investment holds an optimistic view on the trend of the entire A-share market in 2020. The increase in macroeconomic liquidity and economic recovery have a large upward space compared to the relatively low market performance. From the perspective of targeted fundraising demand, the previously suppressed financing needs of listed companies have concentratedly erupted, and the number of new issuance proposals and financing scale have both surged, and the opportunities for participation have also greatly increased. If investment can be diversified, risk control will be more stable.
China Zhongji Investment's Targeted Fundraising Investment Strategy
The income from participating in targeted fundraising mainly consists of three aspects: firstly, the discount rate; secondly, the rise of the broader market (β return); and thirdly, the rise of individual stocks (α return). 1. Absolutely low price and high discount are important decision-making conditions. China Zhongji Investment attaches importance to the price level and discount rate of the target, which is an advantage in participating in targeted fundraising, which can greatly improve the safety margin of investment, and even play a decisive role in the decision-making of individual projects. Among the 20 targeted fundraising targets that China Zhongji Investment has participated in, 80% belong to targets with a "ratio of the actual price of targeted issuance to the benchmark price below 90%". 2. Multi-point layout around key industries. From the perspective of industry selection, China Zhongji Investment closely focuses on the company's circle of competence, selecting stocks in the fields of advanced manufacturing, artificial intelligence, new materials, and finance, and diversifying its layout. To date, it has participated in the targeted fundraising of 20 listed companies in related fields, including Zhonghuan Semiconductor, Shenyu Shares, Tongfu Microelectronics, Tianma Microelectronics, Sitong New Materials, China Tungsten High-Tech, GEM, Hanrui Technology, and Dongfang Sheng Hong. By diversifying investments in multiple companies in the same field, it avoids single-ticket risks and maximizes the harvest of β returns. As an institutional investor, China Zhongji Investment will study and view the selection of A-share targeted fundraising targets from the perspective of industrial investment, especially having a deeper understanding of high-growth emerging industries, making investment more secure. This approach of mutual verification and promotion between the primary and secondary markets is an advantage of China Zhongji Investment and a major trend in the future investment world.
Wen Yuanhua, president of China Zhongji Investment, said that the good returns of China Zhongji Investment's targeted fundraising business in 2020 benefited from the overall positive trend of the stock market, proving that the company's optimistic judgment on the market at the beginning of the year was correct. At the same time, competitive bidding targeted fundraising, as a specific combination investment strategy, is gradually becoming a normalized investment method for institutions to participate in the Chinese stock market, and to a certain extent, it has expanded the range of investment targets for institutional investors to allocate Chinese core assets in the current market environment. We remain rational while being full of expectations for the future targeted fundraising market.
