A Case Study Of Nanjing Pharmaceutical Receivable Asset-Backed Notes

As the weaker party in the industry chain,pharmaceutical distribution companies generally do not have strong bargaining power.With the implementation of the twoticket system,the intermediate links have been significantly reduced and pharmaceutical distribution companies have to perform their own advancing duties,resulting in a sharp increase in the scale of accounts receivable.A high proportion of accounts receivable can erode profits and is detrimental to the normal operation and sustainable development of enterprises.Most of the debtors of accounts receivable of pharmaceutical distribution companies are public hospitals of secondary or higher level,with high credit rating and low possibility of default,so the use of accounts receivable financing is an inevitable choice to revitalise the stock assets of pharmaceutical distribution companies and improve the efficiency of turnover.Compared with accounts receivable pledging and accounts receivable factoring,the issuance of accounts receivable asset-backed notes is not affected by changes in the issuer’s credit rating and focuses more on the quality of the accounts receivable;the one-time largescale financing can also provide timely "blood transfusion" for the enterprise and improve the cash flow of the enterprise with high efficiency.In this regard,it is important to study the case of Nanjing Pharmaceuticals’ accounts receivable assetbacked notes.This paper adopts a combination of literature research,case study and qualitative and quantitative methods to study the accounts receivable asset-backed notes issued by Nanjing Pharmaceuticals.Firstly,we give a brief introduction of Nanjing Pharmaceutical’s financial situation and accounts receivable,and review the structure,transaction process and credit enhancement arrangements of its issuance of accounts receivable asset-backed notes.After that,the motivation,market reaction and wealth performance of Nanjing Pharmaceutical’s issuance of asset-backed notes on accounts receivable are analysed in depth,and the short-term performance is analysed through the market reaction based on the event study method and the long-term performance based on the wealth effect of the factor method.Firstly,high quality underlying assets are the prerequisite for the success of the asset-backed notes issuance;secondly,excellent credit rating of the main body is the key for Nanjing Pharmaceutical to send positive signals to the market;thirdly,the introduction of a special purpose trust has brought positive wealth effect to Nanjing Pharmaceutical.Finally,this paper makes the following recommendations for companies proposing to issue receivables asset-backed notes: first,improve the management of receivables to meet the criteria for admission to the asset pool;second,improve the overall strength of the company to obtain high credit ratings from authoritative third parties;third,introduce dual SPVs in the transaction structure to solve the problem of difficulty in specifying cash flows to build qualified underlying assets.