The Design Of Convertible Bonds In China

Stocks and corporate bonds are the major means of the enterprises' direct financing. With the continuous deepening of the economic and financial reform, China's capital market has been introducing from the west various financial instruments and experiencing impressive innovative activities, which contribute significantly to the country's booming economy. Although convertible bond, one of the well-utilized financial instruments in western capital markets, launched its journey in China one decade ago, China's capital market is still facing the tasks of better understanding its features and improving its devices, which, to a large extent, are characterized by both bonds and stocks financing.By means of theoretical and empirical research, the purpose of this thesis is to study the convertibles' value, characteristics and operational patterns, to conclude the experiences and lessons in convertible device, and to present references for the undertaking convertible financing activities.There are four chapters in the thesis. Chapter One describes convertibles' historical development and its contributive role in China's capital market. Stressing on both macroeconomic and microeconomic stages, the thesis discusses the significance of developing convertible financing, analyses convertible laws and regulations and probes into the adaptive nature of this financing instrument in China's economic and legislative environment. Meanwhile, with the description of the corporate bond's market situation, the paper analyzes both the favorable and impedimental factors in upgrading the convertible financing, and its market potential as well.Chapter Two focuses on the theoretical viewpoints and convertibles' innovative financing attributes. As convertible bond consists essentiallyof creditor's rights and stock call options, the thesis makes a study on its principle characteristics and pricing foundation. Meanwhile, by means of checking the listed corporations' financing activities, the paper compares the financing pattern of convertibles with those of Rights Offering and Seasoned Public Offering, making the points that to devise and issue convertibles is a financing innovation. Moreover, how the issuers determine the issuing opportunity, scale and objective investors is discussed.As a key part of this article, Chapter Three comprehensively discusses convertible clauses, which include coupons, converting price, redemption, put, warrant and compulsive conversion, etc. The above elements affect directly convertibles' structure and investment value, and play significant roles in determining the success or failure of convertibles' issue and conversion. Taking both the issuers and investors' benefits into consideration, people who make the clauses shoulder the responsibility of financing and investment in terms of reasonable valuation, flexible clauses and preventive measures against potential risk. While the structures can be tailor-made to suit particular needs, coupons, conversion terms, and redemption amounts can all be varied and more exotic options can be included for specific purposes. All these contributions enrich convertibles' financing and investment function magnificently.Chapter four researches two typical convertible cases. While the first case focuses on the convertible issued by a major state-owned enterprise, the second one discusses a listed corporation's issuing prospectus.Trying to perfect convertible financing, the thesis analyzes the specific environmental factors in China, checks unsatisfactory device with corresponding solutions and suggests new ideas to state-owned enterprises' reform; it is helpful to the convertible device differentiation and investment banking innovation....