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Discussion on the Chinese stock market, the main issue of the convertible bonds

Author: PanXiaoQin From: www.yourpaper.net Posted: 2007-11-20 09:46:18 Read:

As early as in 1992, Shenzhen Baoan Enterprise Co., Ltd. had issued convertible bonds first. However, until 2001, the convertible bonds in the Chinese stock market is still only a handful. The reason is because, on the one hand, our investors also do not know much about the investment were not enthusiastic about. The main reason is that the main issue of the convertible bonds, the SFC regulations are very strict and very few enterprises eligible issuers. Interim Measures for the provisions of the existing convertible bond management, and may issue convertible bonds only qualified listed companies and key state-owned enterprises, it can be said that the main issue of the convertible bonds only at the maturity of the enterprise. But to analyze the essential characteristics of the convertible bonds, convertible bonds are mainly suitable for growing enterprises.

In recent years, China's high-tech enterprises, especially private high-tech enterprises mushroomed rapid rise of emerging high-tech enterprises financing channels and no corresponding development. This makes a lot of high-tech enterprises have to slow down, some even in the state of stagnation or retrogression. In this case it is taken into account, the relevant national leadership concept department opened the second board market in the country has been put on the agenda. I think this is an opportunity for convertible bonds in China's rapidly growing. The rapid development of high-tech enterprises, the case of the second board market soon, the main issue of the convertible bonds should be gradually shifted to high-tech enterprises, especially in the formative years of private high-tech enterprises in the main main issue.

Second, why in the current environment, the main issue of non-convertible bonds to agricultural science and technology enterprises Center

This can start from the essential characteristics of the analysis of convertible bonds. The so-called convertible bond is issued after a certain period of time can be converted into ordinary shares issued by the same issuer of corporate bonds. As can be seen from the definition of convertible bonds in order to finance the very suitable in the enterprise is in the growth stage. This is mainly due to its special nature: convertibility. For the vast majority of China's high-tech enterprises in the growth stage, it is very important, because they must continue to conduct research and development, and new research results as soon as possible into productive forces. This requires huge capital investments. Their funding needs, however, it is difficult to be met from the existing financing channels.

The companies are currently the most common way to raise funds to issue bonds. Bank loans, issuance of new shares and the rights issue, the first two are pure debt financing, the latter two are pure equity financing. From the system of debt financing for the issuance of bonds or bank loans have very high demands on the enterprise scale, performance and other financial indicators. These requirements for the growing private high-tech enterprises is very difficult to achieve. Even if part of the bank loans, can not meet the funding needs of the enterprise. From pure equity financing for the infancy and growth stage in the development of enterprises, because of the unclear prospects for the development, equity investment risk is relatively large, general investors not dare to intervene early in the development of high-tech enterprise difficult to large-scale equity financing. Even in the second board market financing, over a period of time can only be arranged within a certain number of companies listed on its financing capacity is limited, it is difficult to meet the needs of the development of high-tech enterprises. In short, the common ways of financing and the funding needs of the vast majority of China's emerging high-tech enterprises there are certain contradictions. The convertible bonds can be converted to coordinate better performance this contradiction. On one hand, it can eventually be converted into equity investments, the scale of financing will not be greatly affected, because of the existing enterprise scale investors consider corporate growth, and the growth of high-tech enterprises are more prominent . On the other hand, it has a low risk of the bonds. It only gave a convertible option for investors to participate in the financing of the debt, and not necessarily require conversion. If the conversion classes, investors believe that the company is not worth the investment, he can give up the conversion rights, due in principal and interest. This to some extent, to avoid the risk of early intervention. For listed companies issue convertible bond financing is also more favorable than the allotment or issuance of new shares. So listed companies issuing convertible bonds to allow the second board market, better able to ease the pressure on capital requirements.

In summary, the essential characteristics of the convertible bonds (convertible), decided it is ideal for the business as a financing tool in the formative years. That is to say, in essence, on the convertible bonds is suitable for China's high-tech enterprise. Financing for high-tech enterprises, especially private high-tech enterprises, the use of convertible bonds, has more obvious advantages compared with other forms of financing.

Convertible bonds advantage analysis

1. Maintenance of existing shareholders' equity, centralized control over the enterprise.

The high-tech enterprise that is now very popular mode of financing is the introduction of venture capital. Admittedly, the risk of investment can draw the funds, while the introduction of a set of relatively mature management system, faster on track. Their funding, however, want to occupy the equity of the enterprise, because the enterprise itself smaller, the the invested equity dilution effect is very large, this is a private high-tech enterprise owners unwilling to. Convertible bonds delaying and reducing the impact of this dilution is relatively good. With respect to the issue of new shares and a placement of shares, convertible bonds have the same advantages.

The convertible bonds are usually issued after a certain period of time, its conversion rights to take effect. Many investors will choose near the time of the failure of the exercise of the conversion rights. This gives enterprises a preparation period. Enterprises to be developed to a certain scale, many of the state-owned capital, the equity investment of the same amount of dilution impact is much smaller. This will be able to better safeguard the existing shareholders' equity, is conducive to the existing shareholders to control management. This is the owners hope to achieve.

2. Lower financing costs.

The convertible bonds contain bonds converted into stock options, which means it gives investors the right to obtain equity income. In general, the equity holders of the yield is higher than the bond proceeds to take because the convertible bond contains a potential high yield. Allows businesses to take advantage of the convertible bond financing, the cost of the initial financing more pure debt financing financing costs low. Therefore, the use of convertible bond financing allows companies in urgent need of funds obtained at relatively low cost, relatively large-scale funding, this is very favorable for growing businesses.

, convertible bond issuance body into the feasibility of

If only the front of the subjective desire and objective conditions are not met, it is not enough. Here said the objective conditions of the convertible bonds as a prerequisite to the enterprise has been or is about to issue common stock. If there is no opening of the second board market is just around the corner, in front of all discourse can only be said to be on paper, unrealistic. The opening of the second board market is a foregone conclusion, and only a matter of time. Two the right market for the issuance of shares of high-tech enterprises listed on the open door. Also means that the high-tech enterprises of convertible bonds issuance and listing on the second board market. Its significance lies in increasing the liquidity of the convertible bonds. Investors in convertible bonds provide a smooth entry of an exit, and reduce the risk of investing in convertible bonds. Portfolio Strategy provides a new choice for investors.

It can not be ignored is that policy support. In order to issue convertible bonds with the private high-tech enterprises in the second board market, we must first relax the conditions of issue of the convertible bonds. In order to guarantee that the convertible bond investment risks in the motherboard market control within a certain level, you can consider the Main Board and Second Board companies apply different conditions of issue.

It can be predicted that the convertible bonds will be rapid development in China, and to promote the diversification of China's securities market financial instruments. The same time, it will be its own unique advantages for our country in the growing high-tech enterprise, especially the development of the private high-tech enterprise, grow and provide the conditions. Of course, this all depends on the active cooperation and support to the policies and regulations of the relevant administrative departments can be achieved.
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