Case Study Of Tangshan Iron And Steel Co.,Ltd. Convertible Bond

Convertible bond is the bond that, in a certain period of time, bond holders have option to convert his bond into issuer’s or a third-party stock according to the agreed price. Convertible bond has debt and equity character. It was supposed to be debt when the equity price is much lower than the prevailing conversion price, and it was supposed to be equity when the situation is opposite.Chinese first convertible bond was issued in1992, and it is more than20years for Chinese convertible bond history. Researchers have put on convertible bond theoretical study, primly including convertible bonds issued motivation, convertible bonds pricing, and convertible bonds declare effect. Overall, convertible bond is far away from mature in china, and the theoretical research should be in-depth study.This paper uses the case study to research Chinese convertible bond, the case is TangShan convertible bond. The analysis and conclusions are following:1.The motivation of the issuer to choose convertible bond is:the cost of convertible bond is less than equity and higher than normal bond; the lower interest rates can alleviate short-term cash flows pressure; the issuer would adjust the structure of the short-and-long-term liabilities.2. The issuer does have the prospectus announcement date timing, the motivations should be:management wants to declare the news that the stock value had been underestimated by the market and reduce the issue risk.3. TangShan convertible bond has under pricing, its issue price is lower than theoretical value. One of the reasons is that the item of the convertible bond is supposed to protect issuer interest, and the issue price has to make concessions to investors, the other reason is to reduce issue risk.4. The initial conversion price is determined based on historical data, in the case of prospectus announcement date timing; the initial conversion price is lower than the theoretical conversion price. 5. The issuer gave up its revised downward of the bond is because of the following reasons:the holders can sell the bonds back in a certain situation, but it is extremely unlikely when bonds’market price is higher than the sell-back price; down-correct conversion price maybe pass the market a negative information.In this paper, based on the case study of TangShan convertible bond, study of Chinese convertible bonds is explored. The conclusions are prospectus announcement timing dose exist in Chinese convertible bond market and convertible bond under-pricing is lack of evidence.