Research On The Application Of Directional Convertible Bonds In M&A

The world today is undergoing profound changes that has not been seen in a century,superimposed on the continuous impact of the epidemic,these changes have become more and more unstable.Market expectations for the global economy have also been lowered due to various destabilizing factors.In order to cope with these changes,our country aims to achieve high-quality economic development and strive to break through the blocking points of internal circulation,so as to support a higher level of external circulation and build a new development pattern.In order to achieve the goal of high-quality economic development,China has been vigorously advocating the integration of resources through mergering and acquiring among enterprises to optimize the efficiency of resource allocation.In the process of mergers and acquisitions,the payment of consideration is one of the important links,which may affect the smooth implementation of merger and acquisition.Compared with other countries,China’s mergers and acquisitions payment methods are relatively simple,we use cash and shares as the consideration for payment.In 2018,China’s stock market did not perform well.Affected by the expectation of falling stock prices,if a company wants to carry out mergers and acquisitions,the target enterprises are more willing to accept cash,so it is more smooth to pay in cash than in shares in the process of mergers and acquisitions.Although companies can choose to obtain funds through refinancing,since 2017,refinancing policies and reduction policies have been tightened,and regulators have imposed stricter restrictions on the frequency of non-public share offering and pricing of refinancing,making it more difficult for listed companies to obtain large-scale funds through refinancing.The mergers and acquisitions market saw a sharp drop in deal size and value in 2018 as traditional payment methods failed to fully meet the demand for mergers and acquisitions deals.In the context of the mergers and acquisitions market turned cold,China Securities Regulatory Commission(CSRC),in order to restore the transaction vitality of the mergers and acquisitions market and promote the high-quality development of economy,issued a notice in November 2018 to carry out the pilot program of directional convertible bonds.Since then,listed companies have successively issued announcements to implement mergers and acquisitions using convertible bonds as a means of payment.With the gradual development of directional convertible bonds as an innovative payment tool in China,it is of urgent demand and profound practical significance to study the factors should be considered and possible effects of issuing directional convertible bonds during mergers and acquisitions,and to provide new ideas for enterprises to choose mergers and acquisitions payment methods.After sorting out and reading the literature related to directional convertible bonds and mergers and acquisitions payment methods,we can see European and American enterprises use a variety of payment methods in mergers and acquisitions,and the payment of related research is also more advanced,but the development of capital markets in those countries are significantly different with our country,the reference significance of relevant literature is limited.It has only lasted four years since the pilot of directional convertible bonds.There are few researches related to directional convertible bonds in China,and most of the researches on the analysis of convertible bonds take publicly offered convertible bonds as the research object.The researches related to mergers and acquisitions payment methods are empirical researches focusing on cash payment and equity payment,with few case studies.Although the empirical analysis based on a large number of samples can reach a general conclusion,the conclusions drawn from the analysis vary with the research samples.Therefore,this thesis will analyze the motivation of representative enterprises to issue directional convertible bonds and the impact of such behavior on enterprises by means of case analysis,so as to provide suggestions for enterprises planning mergers and acquisitions in the future.This thesis sorted out the data of enterprises that issued directional convertible bonds as a means of payment and implemented mergers and acquisitions,and selected Rongda Photosensitive,the listed company that issued directional convertible bonds with the highest proportion of the payment consideration,as the research object.By comparing the advantages and disadvantages of different payment methods,the differences between the terms of ordinary convertible bonds and directed convertible bonds,and the changes of financial status and capital structure of the research object before and after the merger,the reasons and advantages of choosing to issue directed convertible bonds and the impact of this behavior on the enterprise are analyzed.Through research,it is found that the issuance of directed convertible bonds by enterprises can relieve the capital pressure,reduce the risk of information asymmetry,enjoy the preferential treatment of deferred taxation,reduce financing costs and improve the efficiency of mergers and acquisitions.Both sides of the transaction can realize the game of interests by formulating special terms,so that mergers and acquisitions can proceed more smoothly.By studying the changes of excess return rate,financial index and capital structure before and after the issuance announcement of Rong Da Photosensitive,this thess found that the mergers and acquisitions effect after the issuance of directional convertible bonds is better,but this behavior also has risks.Enterprises should hold a prudent attitude,choose appropriate payment methods according to their own development planning and financial status,and establish a risk prevention mechanism.