Chapter 2383: Financing (Part 18)

The Senate's currently stipulated maximum annual lending interest rate was 25%. Any excess beyond that wasn't judicially recognized, and if it explicitly exceeded this number, the lender would even be penalized—but that was still much higher than Chu He's proposed rate.

However, Chu and Zhou obviously turned a blind eye to Mayor Liu's eye roll. Perhaps they didn't see it, or perhaps it was a kind of contempt:

When it came to being an official, maybe you're impressive, but when it comes to harvesting leeks... doing finance, you could only be considered half-informed.

Chu He was very modest at this moment, completely without the intention of demanding accountability from a few days ago. "Actually, my proposal isn't anything special. I imagine many people should have better proposals..."

"Hey, hey, just say it first." Liu Xiang was a bit dissatisfied, thinking: at this point, why are you still being fake?

Zhou Wei also immediately expressed his stance. "I read Senator Chu He's proposal. It's very insightful! Very inspiring!"

Chu He said, "I originally planned to elaborate on this proposal in the upcoming meeting. Since you two are so interested, let me explain it first."

With that, he adjusted his appearance, looking very much like he was standing before a projection screen ready for a roadshow.

After pondering for a moment, Chu He turned to Zhou Wei and asked:

"Senator Zhou, please allow me to ask a question first. Has the Senate prohibited the Nanyang Company from issuing bonds?"

Zhou Wei was startled, thinking: what does your proposal have to do with the Senate?! But he hadn't read Chu He's proposal carefully, only knowing it was bond-based.

In the documents the Planning Committee sent him, there was no explicit statement on how to raise funds. Issuing stocks was more of an instruction on share distribution rather than some kind of authorization or restriction.

He thought about it and said, "Well... the Senate hasn't explicitly stated on this question. The Senate only gave me a document permitting the Nanyang Company to issue 100,000 shares of stock. There's no restriction on how to issue them or what type. The bond question wasn't mentioned."

"Then does the Nanyang Company intend to issue bonds?"

Zhou Wei thought: what use is my intention? The Senate neither prohibited nor allowed bond issuance. If proposing to issue bonds, it should theoretically be fine.

"The dual approach of stocks and bonds is our consistent policy." Zhou Wei said correct but useless words. Because all the fundraising proposals in his hands worth looking at mostly followed this pattern.

Before the Nanyang Company had sufficient commercial credibility, issuing bonds was obviously much more realistic than stocks.

Chu He said, "The dual approach of stocks and bonds is indeed a good method. My personal view is that bonds must be issued, and bonds should be the main focus. To be honest, my original idea was to prioritize bond issuance. Stock issuance wasn't urgent. Who would have thought the Administrative Affairs Yuan directly issued a notice to issue stocks. Bonds are obviously much easier to issue than stocks!"

Upon hearing the criticism of the Administrative Affairs Yuan's "unprofessionalism" and "recklessness" in these words, Zhou Wei immediately perked up and nodded repeatedly.

But Chu He didn't know the source of his expression and thought his words were "particularly professional." He couldn't help showing a pleased expression, his voice rising a few notches:

"For the natives, issuing bonds presents no difficulty in understanding—it's just lending money for interest. Public stock offerings are different. Not to mention whether the big households can figure out how much the Nanyang Company is worth, even for ourselves, clarifying the Nanyang Company's asset situation, equity relationships, setting up new equity structures, and evaluating asset values are all troublesome matters."

Zhou Wei thought: not bad. A few days ago when checking the Southeast Asia Company's assets and equity situation with Xu Yanliang and Wang Kai, it had been unexpectedly complex. The Nanyang Company's equity structure still hadn't been figured out.

Chu He continued. "Issuing bonds doesn't have these troubles. Moreover, having the broad masses of native big households and clan gentry judge the Nanyang Company's value and make investment decisions accordingly is very difficult, because first, they can't judge the Nanyang Company's value; second, they can't judge the returns from stocks; third, they have concerns about the safety of principal; fourth, the exit mechanism for principal is unclear. Targeted issuance to a small number of people can of course solve these problems. As long as the Senate is willing to exert great effort to explain, plus some coercion, the big households can't possibly not buy. The question is, with that time and energy, isn't issuing bonds better?"

Liu Xiang interjected. "The Senate's commercial credit is still acceptable. Ziji has issued non-preferred stock, and subscriptions were quite enthusiastic. There is a popular base for issuing stocks."

"There is a popular base. However, Ziji's several establishments all clearly have assets in Guangzhou city, and they're heavy assets. Its operating conditions are also clear at a glance. The old money trusts them. But the Nanyang Company only has a signboard in Guangzhou city. The old money also doesn't know what the Nanyang Company specifically operates," Chu He said. "Convincing the natives with just a PPT probably won't work. We need to bring out something more convincing."

Liu Xiang frowned slightly without speaking.

"Besides being easy to understand, bonds also have clear interest rates, terms, and collateral. Native big households can easily judge the value and returns of bonds. Additionally, the possibility of the Senate not repaying borrowed money doesn't exist. The safety of principal and recovery mechanism are both guaranteed." Saying this, Chu He thought: the possibility of the Senate not repaying borrowed money not only exists but is high. When it's time to repay, the Senate probably has plenty of ways.

But it didn't prevent him from continuing expressionlessly. "So for the big households, bonds are a form they can more easily accept. Their willingness to purchase will be significantly higher than stocks. Public issuance difficulty is low, multiple issuance difficulty is low, and bonds will be easier to raise more money than stock financing. Moreover, bond issuance also facilitates forced apportionment—set up a 'reasonable underwriting' for merchant guilds or clans, making them complete the distribution quota. Can they say no?"

Zhou Wei thought: I understand all this. But since the Planning Committee has already issued the stock offering plan, these stocks must be raised. He said, "What you said makes a lot of sense, but the Planning Committee's stock financing plan has already been issued. We still need to execute it."

Chu He nodded. "I'm not against stock financing either. The drawbacks of stock financing I mentioned earlier aren't absolute. I just think the dual approach of bonds and stocks works better and is more beneficial to the Senate's interests."

Liu Xiang cleared his throat. "How do you consider the cost of bond financing? According to our investigation, the current average financing cost for ordinary merchants in Guangzhou is around 25%. If market sentiment recovers, this cost could reach as high as 40%-60%. Of course, we don't allow such high interest rates to exist now. But even at 25%, this financing cost can't be borne."

Chu He thought: this question hit the key point. When the Senate issued the notice only mentioning stock issuance, perhaps there was this consideration. Seemingly a difficult problem, but it scratched his itch. A "confident" sly smile appeared on his face as he said:

"High interest isn't a problem. Of course, openly not paying won't work, but we can dig traps in the rules. The Senate controls the right to formulate and interpret financial rules in this spacetime, and also has money, power, and guns. There are plenty of ways to lower bond financing costs. It just depends on how much face the Senate wants to save."

Zhou Wei laughed. "How would that work? Nationwide interest reduction to celebrate Secretary of State Ma having a precious son?"

"Hahahaha, then for the financial health of Great Song, the Director would have to overwork himself." Chu He laughed. "The eating manner doesn't need to be that ugly. I can give a few examples. First is the 'reasonable underwriting' I mentioned before, just like reasonable burden. We set the interest rate at... say 10%, distribute the issuance quota to major trade associations, merchant guilds, and clan big households, and let them apportion it themselves. As long as we're willing to repay, resistance to collecting this money won't be too great."

This was essentially buying a certificate of allegiance. Never mind 10%—even without interest, they would probably buy.

"Second is making our own rules. For example, writing in the issuance terms: the Nanyang Company may legally reduce or exempt interest under the following conditions in its operating regions: extreme natural disasters such as tsunamis, earthquakes, typhoons; trade embargos, wars, large-scale epidemics, appearance of signs of a hegemon, etc. Naturally, what counts as an operating region, what standards count as tsunamis and earthquakes—the interpretation rights for all these terms are in the Senate's hands. In the old spacetime, we couldn't do this. Now it's still up to us."

Zhou Wei nodded secretly after hearing this: this Chu He still had some ideas. Liu Xiang's expression started looking worse.

"Third, we can find reasons to penalize interest—yes, penalize the interest the borrowers receive. Our Senate is just that domineering." Chu He became more excited as he spoke. "This big household didn't pay the slave tax in full this year—interest penalty! This year's interest on Nanyang bonds held is reduced by 50%! This clan force is outwardly obedient but inwardly opposite to the Senate, obstructing official business—interest penalty! Family's Nanyang bonds interest reduced by 100% for three years!"

Zhou Wei also laughed. "In that case, loopholes need to be left in the rules from the beginning."

"Right, it can be put under 'other situations recognized by the Senate.'"

"What about collateral and such..."

"Naturally, we can cook the books a bit. Inflating income, inflating assets—all very simple. Can merchants in Wuzhou go to Batavia to investigate how much timber is actually in the Nanyang Company's warehouses?" Chu He became more excited as he spoke, a completely different person from in the conference room just now, just short of spitting while talking. "Same with principal. Forced debt-to-equity conversion, forced extension, borrowing new to repay old, corporate bankruptcy—we have plenty of means. Don't even need to repay the principal."

Zhou Wei also came from a finance background and knew these tricks even if not intimately familiar with them, so he wasn't "inexplicably shocked." Liu Xiang was increasingly alarmed as he listened. He thought: in the past, the Executive Committee's extreme suppression of the finance industry, treating the finance and treasury office as mere accountants for so long, wasn't without reason. These means, one set after another—never mind 17th-century natives, even 21st-century well-educated people, how many could figure it out! If they were really let loose, the consequences would be unthinkable.

(End of Chapter)