Case Study Of Mandatory Redemption Of Teijing Convertible Bonds

At the beginning of 2020,the rampant COVID-19 epidemic affected the stock markets of all countries in the world to a certain extent.The capital markets of all countries were in a depressed situation,and China’s capital markets were also adversely affected.Some investors began to turn to both debt and equity convertible bonds,believing that their risk is lower than that of stocks.However,since the first half of 2020,there have been a number of small-scale convertible bonds with high investment enthusiasm and high turnover rate and share conversion premium rate.Some investors ignored the risk of convertible bonds and entered the market.Finally,the convertible bonds were redeemed in advance,cresulting in heavy losses to investors.“The "Taijing convertible bond" forced redemption event is a typical case of forced redemption in the convertible bond market.This paper combs the research on convertible bond redemption at home and abroad,and analyzes the case by using the backdoor equity financing theory,information asymmetry theory and financial distress theory,focusing on discussing the causes of the event from the perspectives of capital market,issuers and investors.The first is to analyze the reasons for the rise in the price of Taijing convertible bonds from the perspective of the capital market.The main reason is that the good news released by "Taijing technology" makes its share price rise.Investors take "Taijing convertible bonds" as a substitute for their shares,which makes the price of "Taijing convertible bonds" rise and fall,and there is no limit on the rise and fall of the convertible bond market,which contributes to the higher and higher price of "Taijing convertible bonds".Secondly,from the perspective of the controlling shareholder of the issuer "Taijing technology" and the company’s financial situation,it analyzes why "Taijing technology" made the decision to delay the redemption of convertible bonds.It is found that there is mainly the phenomenon of equity pledge of major shareholders,as well as the decline of the company’s profitability and operating capacity in the first quarter of 2020.The company’s financial situation is poor,and it is also based on risk considerations,"Taijing technology" has made a decision to delay the redemption of convertible bonds.Finally,it analyzes the reasons for investors’ losses.Wrong buying timing,lack of sharp judgment and misunderstanding of redemption terms all lead to losses.From this event,on the one hand,we see that the trading rules of convertible bonds in the capital market need to be improved,and corresponding rules should be set to better control the price risk of convertible bonds;On the other hand,as the issuer of convertible bonds,it should strive to maximize its own interests,better protect the rights and interests of investors,and try its best to play the role of risk warning;Finally,investors who suffered serious losses in this event should also reflect on whether they have the corresponding investment knowledge before entering the market.Based on the Enlightenment of the above three aspects,this paper also puts forward four suggestions for the improvement of China’s convertible bond market:improving the convertible bond information disclosure system,strengthening the supervision of the secondary market,implementing the "t+1" trading system and setting up price limits for convertible bonds;For issuers,this paper puts forward three suggestions: enhancing the certainty of terms,disclosing transaction information,and advocating equity of rights and responsibilities.Finally,this paper also puts forward three suggestions on how investors can prevent the risk of convertible bonds: judging whether there is arbitrage space between convertible bonds and positive shares according to the index of conversion premium rate,guessing investment risk from the investment group of convertible bonds,and preventing investment risk from the corresponding relationship between trading volume and balance.