Qingdao Haier Convertible Bond Financing Program

Convertible bond is a bond which can be converted into shares at a certain peiiod according to lawful procedures and prefixed terms. It can raise fund and avert risk, in many cases, it is in fact deterred raising fund by stock. Its conversion price is higher than the issuing price of new stock. Due to Qingdao Haier's preference for raising fund by issuing new stocks, its capital structure is not reasonable, if it raise fund by convertible bond, it will increase value through tax shield, it will also reduce the agency cost brought about by debt. Qingdao Haier has to strengthen management in order to make the conversion successful.The paper analyzes Qingdao Haier's operation status and financial status in 2001, analyzes its competitiveness and the impact of the change of environment on it, points out the problems existing in its capital structure, forecasts its income and earning before interest and tax in 2002, and compares convertible bond with stock and bond with respect to individual capital cost, overall capital cost, differential cash flow nud earning per share, and draws the conclusion that convertible bond is the best choice for Haicr.The paper continues to systematically design convertible bond for Haier and evaluate the convertible bond using the option pricing model.The final conclusion of this paper is that raising fund by convertible bond suits Qingdao Haier's financial status and is the best way, investors for convertible bond will get good return.