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Explore the convertible bonds from a financing perspective

Author: ZhangJie From: www.yourpaper.net Posted: 2009-03-31 10:06:19 Read:
Abstract: May 8, 2006, the China Securities Regulatory Commission issued a "Issuance of securities of listed companies, including the provisions of the convertible bonds is more reasonable, more perfect, defined separable transaction listed companies public offering of convertible corporate bonds, changing varieties of unity of convertible bonds. Convertible bond market conversion impact undergone share reform, the expansion will once again usher in the climax. There is no doubt that the convertible bonds has now become an integral part of China's capital market investment and financing tools, but from a practical point of view, there are still some problems in the convertible bond financing of listed companies and a serious impediment to the development of the securities market. Therefore, from the point of view of the listed companies financing through the study of the the convertible bonds rapid development and development-related issues, put forward some suggestions and countermeasures of the the perfect convertible bond financing is very necessary.
Keywords: capital markets; listed companies; convertible bonds; refinancing; separation transactional convertible bonds

Convertible bonds in the rapid development of capital market financing

Since the start of 1843, New York Erie Railway Company issued the world's first convertible bonds, convertible bond financing for more than 100 years of history in the capital market plays an important role. Convertible bonds to finance a shorter history, after the 1990s, with the establishment of the stock market began to appear.

Shen Baoan Group in November 1992 issue of China's first convertible bonds, convertible bonds is almost at a standstill due to the failure of its conversion. Until March 1997, three non-listed companies have issued convertible bonds. Hongqiao Airport and Angang New 2000 convertible bond issue, following the "deep security" after the listing of the company once again be allowed to issue convertible bonds.

As of June 2001, only five of the Chinese bond market on convertible bonds, issued a total of only 47 billion. July 2001, Shenzhen and Shanghai A total of 15 listed companies issued or to be issued convertible bonds;, 34 listed companies have raised the issue of the convertible bonds, plans to raise 26 billion yuan as of August 22, 2002 . Shanghai and Shenzhen in 2003 issued a total of 16 convertible bonds to raise funds totaling 18.55 billion yuan, accounting for 49.87% of the total refinancing.

12 convertible bonds were issued in 2004, the cumulative scale of 20.903 billion yuan, accounting for 46.54% of the total refinancing to be higher than the allotment and issuance of share. 2003 and 2004, the convertible bond market for two years of rapid development.

In 2005, due to the split share structure reform, refinancing stop, no new bond issuance in the primary market, secondary market trading was light, focus on conversion of the convertible bond market into a downturn. Nevertheless, in a sluggish market, convertible bonds will continue to become more attractive financing options.

July 26, 2006, Liuzhou Chemical announced the issuance of a convertible bond prospectuses, the scale of financing of 307 million yuan. Only of re-opened the prelude to the financing of convertible bonds, which will be convertible bonds in the secondary market to provide fresh blood, and contribute to the healthy development of the bond market.

With the issuance of securities of listed companies management approach "introduced, a listed company may issue separable transactional convertible bonds (bonds with warrants attached corporate bonds). Except Magang New Steel and Vanadium, Tangganggufen, Wuhan Steel shares, Sinochem International Yuntianhua, Shenzhen Expressway six companies will adopt this innovative way to refinance, including New Steel and Vanadium, Don Steel shares are adjusted to the original convertible bond program separate convertible bonds. Seven companies financing amount is expected to reach 234 billion yuan, the convertible bond market for the current balance of 10.381 billion yuan of 2.25 times.

It can be expected that the convertible bond market conversion impact undergone share reform, the expansion will once again usher in the climax. Moreover, after the introduction of a new management approach, there are nearly 60 companies proposed motion of convertible bonds to refinance more than 40 billion yuan, is expected to total financing scale, after the release of Liu of bonds, convertible bonds financing projects will be listing.

Separable transactional convertible bonds and ordinary bonds will jointly promote the development of the market, convertible bonds convertible bonds will usher in a stage of rapid development.

Second, the use of the existing problems in the convertible bond financing

Of the convertible bond market in recent years has developed rapidly, but compared with Western developed countries, China's convertible bond financing in practice there are still many defects, which is the financing of listed companies in China as well as the development of the bond market played a serious impediment. There are the following problems:

(A) listed companies blindly follow the trend of the convertible bond financing, risk-free awareness

The listed companies will be able to convert the bond issuance set a very subjective hope that the investment schedule conversion mean obviously, there is no principal intention. Almost all companies issuing convertible bonds regarded convertible bonds as equity financing alternatives. Overview of the purpose of the use of a convertible bond financing of listed companies in China, most of them not improve the company's capital structure, reduce financing costs., But in order to evade the legal regulation of the capital markets and financing requirements, depending on the convertible bond financing as "free lunch ", and do not realize that if the stock price fell conversion failed, would be" an expensive lunch "did not fully consider the risks of its implication. Once a company has issued bonds, will be faced with, such as interest rate risk, sale back risk, fell risk, conversion risk of failure. Otherwise, although the financing is successful, there may be the company dragged into the quagmire, the lesson from this is profound.

Japan, for example, into the partner companies in the 1980s issue 37.4 billion yen of convertible bonds, hit the stock market crash in the 1990s, resulting in the conversion failed, and the renowned on into partner companies, due to their inability to repay the convertible bond principal and interest declared bankrupt.

As the first convertible bond financing of listed companies in China's capital market - Shen Baoan, after the conversion failed, although the repayment of bond principal and interest, but Baoan From then transferred trough, its operations and financial condition of the negative impact.

(B) the main issue of the convertible bonds industry distribution unreasonable

From overseas experience, the convertible bond market, strong financial support for the rapid growth of a large number of high-tech enterprises. In China, the main issue is limited to listed companies and large state-owned enterprises, while other companies are not financing opportunities. The development of high-tech industries, requires a lot of capital on the one hand, the other hand, face a greater risk, and is ideal for the issue of such varieties of both debt and options. The new approach does not tend to the energy, raw materials, infrastructure, companies, provides equally issuing company needs in the three most recent fiscal year, the weighted average net assets yield an average of not less than 6%; the accumulated corporate bond balance does not exceed this issue end of the latest net asset value at 40%, although the financial indicators has decreased, the issue of the lowering of the threshold, but the main issue is still matured, stable operating results and cash flow, lack of sufficient growth mainly large companies, and those small, is still in the formative years, financing more difficult for high-tech enterprises through other means is still unattainable.

(C) rush to issue financing, do not pay attention to grasp the issue of timing.

Generally, when the bull market, the issue of convertible bonds for the best interests of the existing shareholders of the listed company, can get premium income, the issue size is determined, you can get more financing amount. But the bull market issue convertible bonds, share price could reach the bull market level in the future, resulting in conversion failure, which may bring greater financial pressure. This case is very prominent in Japan in the 1990s, China's Shen Baoan convertible bonds issue is so. When the market is in a bear market, the issue of convertible bonds is more favorable to investors, because the share price of space is very large, due to the small amount of the financing of low share prices for listed companies, generally feel that the transfer of interests too large, no Too reluctant issue. Therefore, the convertible bond issuance market acceptable timing is considered to be the best interests of the market toward recovery from the bottom of the economic cycle. At this time, the relatively low market interest rates, the stock market is often at a low ebb stage, a listed company can issue convertible bonds at low interest rates. When the market picks up again, the company's stock rose sharply, and the conversion can be smoothly achieved, then there is a lot of investment opportunities and profit margins for investors. Of convertible bonds issued by enterprises does not seem to realize this.
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