China Convertible Corporate Bond Market And Regulatory Ideas

Convertible bond as a financing instrument has a history of more than 100 years. It has the combined character of a stock and a bond. When condition permits, it can be transferred from a bond to a stock. It has low financing cost to the issuers; Investors can use it to avoid investment risk. Therefore, convertible bond has advantages over a pure bond or a stock. In a word, convertible bond has become an indispensable financing instrument in the capital market.Convertible bond came to China in the early 1990s. It is only in the recent years that convertible bond market is regulated by our government. Therefore, there are still a lot of problems in the developing process. Issuers tend to strengthen its character as a stock in order not to return the capital; the type and volume of convertibles are so small that investors do not have many alternatives to make investment decision; the issuers are mostly listed companies in the traditional business, which shadows the advantage of a convertible bond. Thus the efficiency of the capital market is deteriorated, the mutual trust is destroyed, and transaction cost flies up.The author intends to point out that the improper policies in the convertible bond market are liable for the existing problems. To find out the root of these problems is very important to the restructuring of our capital market, to the protection of the investors, and to upgrading the quality of the issuers. The purpose of this thesis is to find out the institutional root of the existing problems in our convertible bond market and make suggestions to the revision of current policies.The structure of this thesis:Chapter 1. Introduction of the basic concepts concerning convertible bonds, including the combined character of a bond and a stock.Chapter 2. The necessity of developing convertible bond as a financing instrument. Firstly, from convertible bond valuation theory, we discussed the advantage to invest in a convertible bond for the investors; Secondly, we argued the strength of the convertible bond to the shareholders from an agency cost point of view. Lastly, we analyzed the benefit of a convertible bond to the issuers through financing theory.Chapter 3. The current situation and existing problems of our convertible bond market. Firstly, we reviewed the history of the convertible bond. Then, we analyzed the characters of overseas convertible bond markets. Lastly, we made comparison between out convertible bond market and the overseas markets, and pointed out the existing issues in our market.Chapter 4. Analysis and suggestions. The institutional malpractices was pointed out,and proved not matching the inner institutions in convertible bond. Achievements:1 Argued the bond character and stock character of a convertible bond had many advantages to the issuers, investors, and shareholders.2 Analyzed the current situation of our convertible bond market. Pointed out the existing issues like improper issuers, the imbalance of the bond character and the stock character of the issuance of convertible bonds.3 From institutions' point of view, I found out the institutional roots of the above issues, and argued that the improper policies and regulations are liable for the existing issues in convertible bond market.4 To encourage competition as a suggestion was made to solve the problems.