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

With the improvement of China’s capital market,M&A has become an important means for enterprises to expand rapidly and achieve corporate transformation.M&A activities have complex procedures and long cycles.The choice of M&A payment method affects the success or failure of M&A activities.M&A payment methods mainly include cash payment and stock payment in China.It is difficult for M&A activities to meet the interests of both parties.The emergence of the directional convertible bond payment method is a significant innovation in the payment tool of M&A.By paying tool combination and the terms and conditions of the flexible design,both parties can carry out full game,and reduce the risk of trading,increase the likelihood of a successful deal.Since November 2018,China Securities Regulatory Commission began to pilot targeted convertible bond mergers and acquisitions,and this tool has been used to a certain extent.In July 2021,the merger and acquisition of targeted convertible bonds entered the pilot phase to the conventional stage.In July 2022,directional convertible bonds were included in the standard scope.Directional convertible bonds have broad application prospects in M&A payment.However,due to the short existence of directional convertible bonds in China’s M&A market,there are few relevant studies on directional convertible bonds.And the related rules of directed convertible bonds are constantly improving.Therefore,the M&A payment of directed convertible bonds deserves attention and research.Through the study of Huadian Power International Co.,Ltd.adopting directional convertible bonds,this paper hopes to provide reference significance for other enterprises to choose directional convertible bonds in M&A.At the beginning of the paper,the policy background of directional convertible bonds used in M&A and reorganization is sorted out.Then,related literature and theoretical basis of directional convertible bonds are sorted out.On this basis,the particularity of directional convertible bonds is reflected by comparing with other bond varieties.Then it is compared with cash payment and share payment to analyze the advantages of directional convertible bonds.On the main line of the case study,taking directional convertible bond M&A of Huadian Power International Co.,Ltd.as the research object,the transaction background and significance,transaction process and transaction plan are sorted out.Then,based on the actual situation of the case,it conducts in-depth research.Firstly,it analyzes the clause design and clause function of Huadian Power International Co.,Ltd.oriented convertible bond.Secondly,it expounds the role of the oriented convertible bond.Thirdly,it discusses the short-term market reaction and long-term financial performance of Huadian Power International Co.,Ltd.through the event study method and the analysis of financial indicators.Finally,it carries out risk identification and risk response.The main conclusions of this paper are as follows:(1)The terms of the directional convertible bonds can use the flexible design meet the demand of the difference of the trading parties.(2)The use of directional convertible bonds in this transaction can ease the cash flow pressure,promote the completion of the transaction,and meet the demands of the debt-to-equity implementing institutions for market exit(3)In terms of performance,this transaction has brought positive market reaction.In terms of financial indicators,it has positive effects on improving profitability and developing ability,but it has increased the asset-liability ratio.(4)The risks of this transaction mainly include the risk of failure of equity transfer,the risk of principal and interest redemption and the risks related to the underlying asset.Based on the conclusion of the case,here are some suggestions.Firstly,enterprises ought to maximize the utility of directional convertible bonds and set the right payment ratio.Secondly,enterprises should strengthen the design of differentiation clauses to meet the differentiation needs of the merger parties.Thirdly,enterprises should identify the risks in the whole process of M&A and establish the risk prevention mechanism.Finally,it is necessary to strengthen institutional arrangements and strengthen information disclosure of directional convertible bonds.