Research On The Risks And Countermeasures Of Directional Convertible Bonds In M&A

With the continuous development of our country’s economy,various industries continue to upgrade and integrate industries through mergers and acquisitions,effectively improving the efficiency of resource allocation.In the process of M&A,M&A payment is a very important decision,which can directly affect the progress of M&A activities and the future development of both parties.Before 2018,Chinese enterprises used relatively simple means of M&A payment,mainly including cash and shares.However,with the continuous weakening of the stock market and the tightening of refinancing policies by the regulatory authorities,listed companies have more difficulties in obtaining sufficient funds through refinancing when they conduct mergers and acquisitions.The market urgently needs to inject new strength.As the China Securities Regulatory Commission proposed the "Pilot Targeted Convertible Bond M&A to Support the Development of Listed Companies" in November 2018,it officially introduced targeted convertible bonds as a payment method for mergers and acquisitions and made clear restrictions on the use of targeted convertible bonds.Directional convertible bond payment can make up for the shortcomings of cash payment and share payment and will not cause the company’s financial crisis due to a large amount of cash payment,and can also delay the risk of equity dilution.However,since targeted convertible bonds have only been launched for less than five years and there are few successful implementation cases,the possible risks of using targeted convertible bonds as a payment method for mergers and acquisitions may not be well known to people.Since cash payment and share payment have been used for a long time,the relevant theoretical research and practical application are relatively mature,but the current application of targeted convertible bonds is less,and the research on related risks and prevention is insufficient.Therefore,this article selects the case of Rong Da Photosensitive Science &Technology Co.,Ltd.,a listed company on the Growth Enterprise Market,acquiring Coants Electronic Materials Co.,Ltd.,and explores the risks that may exist when the company uses directional convertible bonds as a payment method for M&A activities.This article adopts the method of literature research and case analysis to analyze the risk of Rong Da Photosensitive using directional convertible bonds as the payment method of mergers and acquisitions,and discusses the corresponding measures to prevent risks.Firstly,the concept of M&A payment method,the influencing factors of M&A payment method selection and related risks are analyzed and understood by using the literature research method,so as to provide a theoretical basis for the case study.Then using the case analysis method,combined with the specific regulations on directional convertible bonds in the Rong Da Photosensitive merger plan,this article explores the risks and corresponding measures in the M&A payment,hoping to help the follow-up M&A with directional convertible bonds as payment Enterprises prevent the risks involved,provide some inspiration for enterprises to deal with risks,and then help enterprises complete mergers and acquisitions more smoothly.The content of this thesis consists of six chapters.The first chapter is the introduction.This chapter mainly introduces the research background and research significance of this thesis,reviews and summarizes the research on the risk of directional convertible bonds at home and abroad by sorting out the read literature,and then introduces the research methods,research the idea and the general framework of the full text.The second chapter is about the relevant concepts and theoretical basis of targeted convertible bonds.This chapter introduces the concept of M&A payment methods,factors affecting the choice of payment methods,the design of relevant terms,potential risks in targeted convertible bonds,and theories related to the risk of debt as a payment method for mergers and acquisitions.The content of the third chapter is an introduction to the case of Rong Da Photosensitive’s merger and acquisition of Coants by issuing directional convertible bonds as the payment method for the merger.The payment plan for the merger and the relevant terms of the convertible bonds.The fourth chapter is to identify the risks of Rongda Photosensitive’s issuance of directional convertible bonds and the acquisition of Coants and some corresponding risk prevention measures.This chapter firstly analyzes its potential risks,and analyzes the above risks in combination with the design of the terms of directional convertible bonds corresponding preventive measures.The fifth chapter analyzes the effect of Rong Da Photosensitive to prevent the corresponding risks in the fourth chapter.The sixth chapter is the conclusion and enlightenment.Through the analysis of the previous chapters,the appropriate clause design can prevent the potential risks in the payment of targeted convertible bonds and other research conclusions.It can be seen that Rong Da Photosensitive adopts directional convertible bonds for M&A payment,which has indeed improved the efficiency of M&A,and also relieved the financing pressure that may be brought about by the company due to M&A.However,at the same time,we should also pay attention to the potential risks.Before the issuance,the acquired party should be fully evaluated to reduce pricing risks,and it is also necessary to improve the design of corresponding terms to reduce other risks.