The “Zhonghe Factoring Supply Chain No. 2 Asset-backed Special Plan (dual purpose for peacetime and emergency), with legal representation provided by Ronly & Tenwen Partners, was successfully established in the Shenzhen Stock Exchange, and became the country’s first innovative ABS product using the specific variety label of “dual purpose”.

    The originator of the current asset-backed special plan is Zhonghe Commercial Factoring (Tianjin) Co., Ltd., a factoring enterprise under China Co-op Group Co., Ltd. The plan is managed by Capital Securities Corporation Limited, with credit enhancement provided by China Credit Guarantee Co., Ltd. and credit rating services offered by Lianhe Credit Rating Co., Ltd. Sales agencies include Shenwan Hongyuan Securities, China Securities Co., Ltd., China Galaxy Securities Co., Ltd., and BOC International (China) Co., Ltd. The underlying assets primarily consist of accounts payable generated from civil air defense projects and urban underground space development projects undertaken by core enterprises of China Co-op Group.

    In light of the absence of the “dual purpose for peacetime and emergency” in the relevant Innovation Label Supervision Guidelines, our firm’s legal team referred to the Civil Air Defense Law of the People’s Republic of China and Provisions on the Administration of Construction of Civil Air Defense Works. The team also retrieved and quoted news reports from various authoritative sources, including a report published on July 15, 2023 on the website of the State Council of China, a news report on the video conference jointly held by the People’s Bank of China, National Financial Regulatory Administration, and China Securities Regulatory Commission on August 18, 2023; as well as a news report published on September 15, 2023 on the official website of the Ministry of Transport. By further aligning with Shenzhen Stock Exchange guidelines regarding substantive provisions related to “asset-backed securities in specific fields”, our team demonstrated that civil air defense projects should adhere to principles that combine peacetime functionality with wartime readiness and dual purpose capabilities for both normal times and emergencies. It was emphasized that investment in civil air defense projects is encouraged by state policies since the construction of dual-use facilities aligns with major national development strategies and fall within key support areas outlined by industrial policies. Based on these findings, our team issued legal advice stating that over 70% of cash flow generated from basic assets of the current special plan originates from claims of the construction funds allocated for civil air defense projects. Given current policy support and guidance along with characteristics unique to civil air defense projects, such as their utilization for personnel and material shelter, civil air defense command and medical aid during wartime and emergencies or for economic purposes and people’s daily lives during peacetime, the use of the “dual purpose for peacetime and emergency” label for specific varieties of asset-backed securities is in compliance with the provisions of the Shenzhen Stock Exchange Asset-Backed Securities Listing Conditions Confirmation Business Guidelines No. 3 - Specific varieties. The relevant analysis and legal opinions have been recognized by the Shenzhen Stock Exchange, leading to the successful launch of the nation’s inaugural ABS product using the specific variety label of “dual purpose”.

    The successful establishment of the country’s first “dual purpose for peacetime and emergency” ABS Plan signifies further endorsement from  China’s capital market for the construction of civil air defense projects and “dual-use” public infrastructure, and has injected new impetus into the development of related fields.

      The legal team of Ronly & Tenwen will continue to demonstrate unwavering dedication in providing professional legal support for similar projects, thereby facilitating the steady development of the capital market and the successful implementation of major national development strategies.