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The issue of the convertible bond financing problem analysis

Author: LiXiaoHong””GaoShaoFu From: www.yourpaper.net Posted: 2009-04-03 04:00:21 Read:
[Abstract] convertible bonds has become one of the main ways of financing of listed companies in China market. This paper analyzes the problem of convertible bonds to the main issue, the issue of motivation, the timing of the issue, in the terms of issue of design to the issuer of the financing instruments have a rational understanding of the effective use of bond financing.
[Key words] convertible bonds; the main issue; issue of motivation; timing of the issue; terms of issue

Convertible bonds (hereinafter referred to as the "Convertible Bonds") financing low-cost, large-scale financing, flexible operation; convertible bonds issued share capital increase in a buffer period. Performance indicators diluted pressure can greatly ease; greatly improved when the possibility of debt can be transferred. The company's principal risks are reduced. Convertible bond financing flexibility and attractiveness to investors the Company's financing has become more convenient. As China's securities market a flexible and attractive available financing instruments, convertible bonds is undoubtedly one of the main channels of financing by listed companies.
China's listed companies generally want to use bonds to finance. Securities of listed companies issued Administrative Measures "(hereinafter referred to as the" management approach ") has been formally implemented, the listed companies in China use of bond financing showed certain financing Mistakes". Issuer only have a rational understanding of the financing instruments. Select the appropriate timing of the issue, the terms of the rational design of debt issuance in order to effectively use bond financing.

A convertible bond issue of motivation irrational

Issuance of convertible bonds for a specific company in a specific financing objectives is a feasible and appropriate choice. But many companies once they reach the conditions of issue, into a rush to issue bonds misunderstanding on the issue of motivation, there are some drawbacks. The issuing company chose this form of financing is not due to a rational choice of the convertible bonds, but the bonds as equity financing alternatives. Not only failed to take into account their own circumstances are appropriate to the issue, and is very similar to the design of the convertible bond terms, and hope that by the terms of the enhanced shares. This herd phenomenon, in fact, is a listed company on the convertible bonds of a one-sided understanding, is the lack of a typical performance of its risk prevention.
Issuance of convertible bonds people looking at the benefits for the company at the same time, the risk of bonds and stocks must be noted that the issuance of convertible bonds. If the conversion is unsuccessful. The issue of the company's financial leverage will not only fail to reduce, and centralized reimbursement of the convertible bonds may give the company a financial pressure, the issuer must bear due to poor management and can not repay the principal and interest of creditors the company resulting from the risk of bankruptcy; while in conversion of the convertible bonds, the shareholding diluted. Cause the risk of decline in the company's share price. The issue of the convertible bonds is not a free lunch.
In addition. Convertible bonds in China, the lack of variety and innovation, not all the best channels of corporate finance. Not all are suitable for the issuance of convertible bonds. The necessary conditions for the convertible bond financing: the company should have the actual needs of the future capital expansion: the company should be suitable for debt financing. Regulatory authorities issued standards are not standard issue convertible bonds. Listed companies can not as long as they meet the conditions laid down by the "management approach" to rush to issue convertible bonds, the value of the company failed to improve, even in financial crisis. A negative impact on the company.
So, for the issuer, not the convertible bond financing advantages absolute. First measure their specific situation should be decided to issue convertible bonds, convertible bonds should be combined with the company's development and financing objectives. To minimize the company's financial risk and credit risk. The issuer should not blindly follow other companies. Even make financing decisions based on the error awareness and understanding of the convertible bond financing function, blind.

, Convertible bonds issued timing mistakes

The choice of the timing of the issue involves not only the company's ability to successfully and in full to raise much-needed funds as well as the level of financing costs related to the company's market image and in future financing credit. Select the favorable timing of the issue of convertible bonds issued important factors for success with the conversion. Shen Baoan convertible bonds eventually lead to errors in the timing of the issue is the fundamental reason for the conversion failed.
When the stock market is in a bull market, the issuance of convertible bonds is generally difficult to achieve conversion. Due the ordinary bonds deadline up to six years, the future stock price to reach bull market level, conversion failures need to refinance debt service, it may bring greater financial risk, damage the company's image and investment those interests. Therefore, when the stock market is in a bull market. Should not be the issue of the convertible bonds.
When the stock market is in a bear market, the shareholders allotment enthusiasm is not high, and the issue of the convertible bond financing, reduce the conversion price set, easily recognized by the market and accept the Company's financing plans are generally easy to implement. And the higher the probability of a successful conversion. However, the issue of the convertible bonds is not an ideal time to stock market downturn. As the stock market downturn, the positive stock market low price. The conversion premium is also low. Raise funds is relatively small; or approved fund raising amount, the lower the conversion premium, the greater the number of conversion, the issuer capital expansion in the future the greater the pressure. The higher the earnings per share in the future requirements. The stock market downturn, it may be a period of high market interest rates, the issuance of convertible bonds coupon rate will be relatively high level, the issue of the cost increase. Unfavorable to the issuer. When the bullish stock market. Bond holders premature focus on conversion, will be more obvious negative impact on the Issuer earnings pressure.
It seems that the choice of the timing of the issue, it is necessary to consider the issue smoothly, but also to consider the conversion success in the future. Should be selected on the basis of both creditors, equity and the interests of the issuer tripartite the price second lowest in the history in the lower region as a period of time of the issuance of convertible bonds, more appropriate. In general, when the stock market is conducive to issuance of convertible bonds by the downturn tend to rise during the conversion, the decline in market interest rates and more useful to investors in convertible bonds recognized.
In addition to considering the impact of external market trend on the issue of timing. The timing of issuance of convertible bonds issued within the company should also consider a number of factors. The issuing company should be in the growth stage, more reliable performance growth; relatively healthy financial structure, able to withstand the new debt. The issuing company should have a suitable investment projects, these investments must be combined with the direction of the adjustment of the industrial structure in China, financial reform trends and changes in market interest rates and other market risks, consider the investment projects to ensure the future profitability of investment projects, reduce the risk of the company.

, Convertible bonds the terms of issue of design defect

The reasonable terms design is the key to the success of the financing. Stipulated in the terms of the convertible bond issues is unreasonable, will lose its attractiveness to investors; agreed not considered comprehensive, can lead to potential disputes and risks. Therefore, the terms of issue of the convertible bonds the core content.

(A) the terms of the convertible bonds issued similar design
By way of comparison, the issuance of convertible bonds in China announcement almost the same terms of issue. However, listed companies have different texture. Can not and should use the same convertible bond terms. Due to the issuer in which the industry and the industry in which the life cycle. The size of the demand for capital and different time, the trend of changes in its share price volatility, if the terms of the issuance of convertible bonds of these companies is very much the same, it is bound to cause problems in the issue stage and the conversion stage. Industry life cycle in accordance with the conditions of issuance of corporate capital investment project outputs and to develop appropriate terms of issue, to attract different preferences investment people, is the key to the issue of the convertible bonds.
Issue bonds in the terms of the bonds should be a two-way design to consider the benefits, risks and costs. The issue of the convertible bonds will face a number of risks, risk fell back to the sale of risk, the risk of failure of conversion. In the design of the terms of the convertible bonds, not in order to successfully issue blindly to please bonds investors should consider the costs and risks, and strive to reflect the travel alienation and innovation.
With step-by-step reduction of the corporate issuer threshold, the issuance of bonds will also face fierce competition. The company then simply by raising the bond coupon rate, the downward revision of the conversion price, "General measures to enhance their appeal is no longer enough, and the need to innovate in the design of the convertible bond terms. Such as the implementation of the rapid development of zero-coupon bonds in the global market in recent years, in terms of the design, the more varieties of derivative financial (such as warrants) convertible bonds. Risk and return on the bonds, so that the interests of all parties to achieve balanced.
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