Controlling Shareholders’ Arbitrage In Combination Of Exchangeable Debt And Private Placement

Financial arbitrage is the behavior of enterprises and investors to profit from the imbalance of financial markets.In modern financial economy,financial arbitrage is universal.There are many forms of financial market’s imbalance,and the corresponding forms of financial arbitrage are also diverse.These arbitrage activities form an arbitrage network centered on price arbitrage.The combination financing mode of exchangeable bonds and private placement is one of the typical forms of financial price arbitrage.Exchangeable bonds will be issued at a higher convertible price,and private placement is usually issued at a discount for liquidity Compensation of lock-in period.Controlling shareholders can use the difference between the issuance price of the two bonds to achieve arbitrage.In this process,information asymmetry and agency problems will cause small and medium-sized shareholders can not correctly and effectively identify the arbitrage motivation hidden in the financing behavior.Controlling shareholders can obtain arbitrage space through this financing mode,and ultimately encroach on the interests of small and medium-sized shareholders.Therefore,the arbitrage pattern of controlling shareholders’ issuing exchangeable bonds and participating in private placement,as well as the underlying motivation and economic consequences,deserves further study.The main research methods used in this paper include normative research and case analysis.In the aspect of normative research,a large number of relevant literatures are reviewed and summarized.The theoretical explanations of exchangeable bonds and private placement,as well as the arbitrage behavior of controlling shareholders are elaborated.In the aspect of case analysis,this article taking the arbitrage behavior of controlling shareholders in the process of issuing exchangeable bonds and participating in private placement as a case study,this paper studies the mechanism,motivation and economic consequences of controlling shareholders’ arbitrage behavior by means of portfolio financing.In the aspect of theory,it is conducive to digging deeper into the hidden arbitrage motive in the portfolio financing behavior and broadening the research on the self-interest behavior of controlling shareholders of listed companies through portfolio financing.In the aspect of practice,it also provides enlightenment for the relevant regulatory authorities to strengthen the supervision of arbitrage behavior of listed companies,which is conducive to standardizing the behavior of issuing exchangeable bonds and directional additional issuance and raising matching funds of listed companies in China,and provides a realistic basis for more market-oriented and rational supervision.This paper is divided into five sections,each chapter of the specific content is as follows.The first chapter is an introduction,explaining the significance and background of the research,reviews the literature on exchangeable bonds,directional issuance and tunneling behavior of major shareholders domestic and abroad,identifies the research ideas and methods,and establishes the framework of the article.The second chapter mainly elaborates the related theories of these two kinds of refinancing methods.Firstly,the concepts,elements and characteristics of exchangeable bonds and private placement are introduced in detail.Secondly,the main ways and mechanisms of controlling shareholders using exchangeable bonds and private placement arbitrage are elaborated.Finally,the theoretical basis involved in this paper is explained and summarized.Chapter three introduces the whole process of the case.Firstly,it explains the situation of the directional additional shares issued by Markor Home,and then introduces the situation of the exchange bonds issued by the controlling shareholder Markor Group.It is found that the directional issuance of Merck Home and the issuance of exchangeable bonds of Markor Group are simultaneously carried out,and there is arbitrage motive of controlling shareholders.Chapter IV is a case study.It first introduces the mechanism of Markor Home arbitrage portfolio,and then deeply analyses the motivation of the controlling shareholders of Markor Home to choose such arbitrage mode,including alleviating the financial pressure of the parent company,arbitraging profit space through price difference,and grasping control rights.Then it explores the economic consequences,and holds that the controlling shareholders gain returns by increasing their holdings through directional issuance and discount,and then reducing their holdings of listed companies through the exchange bond premium,but at the same time it also damages the interests of small and medium-sized shareholders.Finally,the fifth chapter is the conclusion and enlightenment.It is believed that the combination of exchangeable bonds and directional issuance provides the controlling shareholders with an efficient way to achieve arbitrage.It is difficult for other minority shareholders lacking control rights to discover this kind of hidden arbitrage reduction,which may infringe on the interests of minority shareholders.It calls on the relevant regulatory authorities to strengthen the supervision and management of the arbitrage behavior of controlling shareholders,especially to strictly examine the issuance motivation of exchangeable bonds and private placement,so as to avoid the negative impact of the self-interest behavior of controlling shareholders on the market.The main contributions of this paper are as follows:a large number of literatures have studied the arbitrage in the financial market of listed companies and the interest transfer behavior of controlling shareholders.These literatures have discussed more ways to realize the interest transfer in the traditional private placement,including reducing the discount rate,earnings management and false asset injection.However,little research has been done on the transfer of interest between exchangeable bonds and private placement portfolio arbitrage.This paper studies the deep-seated motivation and economic consequences of the listed company’s controlling shareholders’ issuance of exchangeable bonds and participation in private placement to realize arbitrage,enriches the research literature on financial market arbitrage and interest transmission,and reveals the strong motivation of controlling shareholders’interest transmission hidden in the new financial derivatives.The main contributions of this paper are as follows:a large number of literatures have studied the financial market arbitrage of listed companies.These literatures have more discussed the impact of traditional arbitrage on listed companies,but few studies have been done on the combination arbitrage of exchangeable bonds and private placement.This paper studies the deep-seated motivation and economic consequences of the listed company’s controlling shareholders’ issuing exchangeable bonds and participating in the private placement to realize arbitrage,enriches the research literature on financial market arbitrage and the self-interest behavior of controlling shareholders,and also reveals that the arbitrage behavior of controlling shareholders will eventually infringe on the interests of small and medium shareholders.