(Yicai Global) March 4 -- Chinese financial services firm Shanghai Pudong Kechuang Group has issued an intellectual property asset-backed security to raise funding for the city's small and mid-sized science and technology businesses with a particular focus on those involved in the prevention and control of the novel coronavirus.

The IP rights to 60 patents or utility models, which is a patent-like IP right, held by nine private companies have been added to an ABS package with a value of CNY38 million (USD5.5 million), the Shanghai-based company said yesterday. The product will have a two-year term and an interest rate of 3.59 percent.

Of the nine firms selected, three are directly involved in technical support for epidemic prevention and control as well as front-line treatment. Thirty percent of the funds raised will be dedicated to fighting the Covid-19 virus.

The project targets high-tech firms in Shanghai, especially those based in Pudong New Area that hold patents in the integrated circuits, biomedicine, telecoms, high-end manufacturing and other sectors, said Lin Shuiquan, general manager of subsidiary Shanghai Pudong Science Technology Financing Guarantee.

Most asset-backed securities use physical assets such as equipment or real estate as guarantees against loans. However, many small and medium-sized sci-tech firms don't have these kinds of tangible assets, but instead own valuable IP. Leveraging that as collateral is an emerging option.

Shanghai Pudong Science Technology Financing Guarantee supports companies with patents for core products that have an established place in the market and which can help in the fight against the epidemic, Lin said. It performs corporate due diligence and invites professional institutions to assess the IP rights, he added.

Innovative Financing Model

Its operating model is such that it will first pay out the CNY38 million to the selected firms, Lin said. It then packages the IP rights into an attractive ABS product and sells it to investors. With the money received, it can extend financing to a second round of hi-tech firms and so on, he added. The scale of the entire product is expected to reach CNY1 billion (USD144 million).

Pudong Kechuang's ABS is innovative in three ways, an industry insider told Yicai Global. First, it is one of the first to target tech companies with IP as their core assets. These firms pledge future cash flows from existing IP assets or rights to the IP itself in order to secure financing.

Second, the firm is the first to create a 'single approval, multiple payment' model, which refers to a one-time application for participation in the fund and a staggered release of payments to companies, at a rate that the fund manager controls. Third, Pudong Kechuang, which is backed by the Shanghai government, is the guarantor for the difference in the value of the IP rights with the value of the ABS, enhancing the attractiveness of the financial product.

"We have raised CNY5 million (USD719,000) through licensing our IP rights," said Pan Oudong, chairman of OBiO Technology, a leader in viral vector packaging. This has greatly helped to replenish the Shanghai-based firm's working capital, he said.

Over the Chinese New Year holiday, the company's team of 50 worked throughout to develop a vaccine for the Covid-19 virus, he added, putting a lot of pressure on cash flow.

Editors: Tang Shihua, Kim Taylor