A-Share Market Ushers In Role Change in Refinancing of Listed Companies via Convertible Bond Issuance
Guo Luqing
/SOURCE : Yicai
A-Share Market Ushers In Role Change in Refinancing of Listed Companies via Convertible Bond Issuance

(Yicai Global) Aug. 3 -- The convertible bond financing is flourishing after China's regulators have strengthened oversight over private placement of listed companies.

The Yical Global reporter verified the market data and found that the issuance of convertible bonds is now replacing private placement to become a new choice for the financing of listed companies. As of the end of July 2017, the year-to-date issuance size of private placement declined 53 percent year-on-year while that of convertible bonds surged over 120 percent year-on-year.

"The convertible bond issuance is now expanding greatly, with schemes disclosed in the first half year involving an amount of over CNY200 billion," head of a department at an institution focusing on refinancing in Beijing told Yical Global.

The reporter found that a considerable part of listed companies that unveiled convertible bond issuance schemes in the first half year have abandoned their original plans to finance via private placement.

For instance, nine months after disclosing a private placement plan, Inner Mongolia Mengdian Huaneng Thermal Power Corporation [SHA:600863] decided to terminate its private placement and seek for convertible bond issuance; Shenzhen Ellassay Fashion [SHA:603808] filed an announcement on July 18, saying that it would terminate non-public offering of shares and withdraw the relevant application materials as it had decided to turn to the issuance of convertible corporate bonds.

There are 12 listed companies that have replaced non-public offering with the convertible bond issuance on the primary market, such as MYS Group and Chongqing Sokon Industry Group, some data show.

"It is noted that convertible bond issuance has become a green channel for listed companies after China Securities Regulatory Commission (CSRC) promulgated new financing regulations this February," said the department head.

The new financing regulations of the CSRC have made about CNY500 billion (USD74.3 billion) of financing demand squeezed out of the private placement market, enabling convertible bond issuance to become a low-cost financing mainstream channel for listed companies that makes the regulators assured, said a fund manager.

In the eyes of a fixed income business director of a public fund, "More and more enterprises are turning to convertible bond issuance for the regulators have imposed restrictions on private placement and mergers and acquisitions as a result of policy orientation."

The reporter noticed that financial institutions represented by banks also prefer to issue convertible bonds. Due to low costs, short durations and good liquidity, convertible bonds can effectively supplement Tier-1 capital to a certain degree for the financial industry, banks in particular, an analyst told Yicai Global.

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Keywords: FINANCING , Financial Regulation , Additional Stock Issuing , Convertible Debt , Bond Issuance