(Yicai) Aug. 1 -- A convertible bond issued by Bluedon Information Security Technology has become the first such bond to be delisted from a mainland bourse after the Chinese provider of network security solutions was removed from the Shenzhen Stock Exchange yesterday for failing to meet the bourse’s performance requirements.

It is the first time that a convertible bond has been delisted in the Chinese capital market since pharmaceutical firm Bao'an Group introduced the first convertible bond in 1992.

The Bluedon convertible bond was issued in September 2018 with a size of CNY538 million (USD75.3 million) and a term of six years. The bond still had an outstanding face amount of nearly CNY100 million that had not been redeemed as of the end of June with a nominal interest rate of 1.8 percent.

This is just the beginning, Securities Times reported yesterday, citing market analysts. This will urge the market to review credit risks in the convertible bond market, and poor-quality and low-rated convertible bonds will likely be re-assessed.

The convertible bond market has entered an era where risks must be considered, the report said. Under the registration-based initial public offering system, which replaced the much slower approval-based system earlier this year, there is a high probability that more companies listed on the mainland will not meet requirements and be told to delist.

Bluedon Information has been in the red since 2019. Last year the Guangzhou-based company’s losses widened 18 percent from the previous year to CNY1.8 billion (USD251.9 million). The auditor of its 2022 earnings report provided the audit statements with a disclaimer of opinion.

As a result of its lack of profitability, Bluedon Information was kicked off the Shenzhen Stock Exchange’s Nasdaq-style ChiNext market yesterday. And it has now started trading on the National Equities Exchange and Quotations, known as the New Third Board.

According to current rules, once a convertible bond delists, the issuer and sponsor broker still maintain the list of investors and holders of the Bluedon convertible bond can now sell or swap their stock on the New Third Board.

But even though it is no longer trading, the Bluedon convertible bond is still at risk of default. Dividends are due to be paid on Aug. 14 but the company only had a monetary balance of CNY54 million (USD7.5 million) at the end of last year, lower than its outstanding principal and interest.

Clothing and textile firm Souyute was also told it must delist from the Shenzhen bourse on July 21 and more convertible bond delistings are likely to follow.

Editor: Kim Taylor