A Study On The Bonds Of Convertible Corporate Bonds In China

Convertible Bond, also known as convertible or CB, is a special kind of corporate bond which is issued according to law and can be converted into stock shares in certain conditions and during certain period. Since the first convertible bond, Qiong Neng Convertible, was issued in1991, the Chinese convertible bond market has gone through almost two decades of history. With the features of both equity-like and debt-like financial instruments, convertible bond does not only meet the special financing needs of listed companies, but also wins the welcome of investors and support of regulators. However, the convertible bond market in China is still too small, late-stared and lacks innovation.In this context, this thesis is intended to study the equity characteristic of Chinese convertible bond according to the real practice of the Chinese convertible bond market and to give listed companies and investors a theoretical basis for their financing and investing decisions. The79non-financial convertible bonds issued between2000and2012were selected as the study objectives of this thesis. Firstly, this thesis uses the comprehensive parameter N(d), as often quoted in foreign papers, to judge the strength of equity characteristics of Chinese CB. Secondly, the equity characteristics of issuing terms of Chinese CB were studied to analyze the motives of listed companies. Last, we apply the linear regression method to study the relationship between the equity characteristic of convertible bonds and the basic quality of listed companies.We can draw the following conclusions from the study.1) Overall, Chinese convertible bonds have a strong equity-like characteristic.2) The issuing terms of Chinese convertibles are much alike and they reflect issuer’s strong desire for investors’ conversion of CB.3) The strength of Chinese convertible bonds’equity characteristic has a significant negative relationship with the company’s size and significant positive relationship with the company’s growing ability and asset structure.4) The strong conversion desire of issuer is the result of their negligence of CB’s special financing characteristic and treatment of it as a replacement for equity finance.