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

In order to implement the transformation of "managing enterprises" to "managing capital" proposed by the Eighteenth National Congress of the Communist Party of China,and becoming bigger and stronger,recently,the M&A and reorganizations of state-owned enterprises have increased.The methods of M&A payment are divided into cash payment and stock payment,but cash payment may bring liquidity pressure to the acquirer,stock payment may produce equity dilution risk,and the introduction of directional convertible bonds can just make up for the lack of these two payment methods,and gradually become an emerging tool for M&A payment.In corporate M&A events,the purpose of issuing directional convertible bonds is to purchase assets or raise supporting funds,but before the China Dynamics’ M&A event,directional convertible bonds were never used in both aspects at the same time.Therefore,as the first state-controlled listed company in China to issue directional convertible bonds for the purchase of assets and raise supporting funds,China Dynamics has certain cutting-edge and practical significance in studying the application of its issuance of directional convertible bonds in corporate mergers and acquisitions.Taking directional convertible bonds as the research theme,this thesis revolves around the issuance of directional convertible bonds by China Dynamics,a state-controlled listed company,in the course of mergers and acquisitions,and analyzes in detail from three perspectives: the M&A background at the time of the issuance of directional convertible bonds,the transaction elements at the time of issuance,and the performance and risks after the issuance.Firstly,the overview of China Dynamics’ M&A events is introduced,mainly including company introduction,M&A motivation analysis,M&A transaction matters,and analysis of changes in equity structure before and after M&A and before and after equity transfers.Secondly,the transaction elements of directional convertible bonds are analyzed,mainly including:(1)Analyzing the information of state-owned investors in directional convertible bonds in combination with the background of the boom in M&A of state-owned enterprises.(2)Analyzing the issuance advantages of directional convertible bonds as a unique acquisition payment instrument compared with other M&A payment instruments.(3)Conducting a detailed analysis of the unique term advantages of directional convertible bonds,and studying the terms involved in the two purposes of directional convertible bonds for the two purposes of merger and acquisition payment and raising supporting funds in mergers and acquisitions.Finally,the performance and risk after the issuance of directional convertible bonds are analyzed.The company’s performance analysis includes Tobin Q value analysis,short-term stock price analysis and long-term performance analysis,short-term stock price analysis using the event research method,long-term performance analysis using financial indicator analysis and EVA analysis method.Risk analysis from the issuer and investors two perspectives,the analysis of the risks that may be faced after the issuance of directional convertible bonds.The main findings of this thesis are:(1)In the merger and acquisition of state-owned enterprises,the government,as a specific investor,indirectly injects liquidity into state-owned enterprises and implements support for state-owned enterprises by investing in directional convertible bonds.(2)Compared with cash payments and stock payments,directional convertible bond payments can take advantage of their unique advantages to reduce financing costs and alleviate equity dilution in mergers and acquisitions.(3)Directional convertible bonds can be combined with the company’s situation,make full use of the advantages of the terms of directional convertible bonds,flexibly design the terms of directional convertible bonds,and according to the different purposes of issuance,respectively,to achieve different degrees of interest bias for investors and issuers.(4)China Dynamics issued directional convertible bonds in mergers and acquisitions,which had a positive impact on the company’s stock price in the short term,but had a negative impact on the company’s long-term performance.In view of the above conclusions,this thesis puts forward relevant suggestions from the perspective of the government and listed companies: The financial regulatory authorities should combine the issuance experience of the companies that have implemented the directional convertible bond and continuously improve the relevant regulations.The listed companies that issue the directional convertible bonds should also flexibly design the issuance plan of the directional convertible bonds in combination with the issuance needs.