Research On The Design Of China 's Convertible Bonds

Since the1990s, convertible bond (CB) has gone through a tortuous history of development during the past20years in China. Now convertible bond is still developing quickly. This article is divided by five parts. In the first part, this article will discuss the basic information about convertible bonds, including definitions, nature and clauses of convertible bonds. The second part will discuss the development of convertible bonds all around the world. Given the condition that USA has the biggest convertible bond market in the world, this article will mainly discuss the development of convertible bonds in the USA at first, and then discuss the development of convertible bonds in China.In the third chapter this article will analyze the economic nature of convertible bonds both comprehensively and deeply, dividing the nature according to the composition of convertible bond and its investment value. In this way convertible bonds can be divided by bond, equity and option with return, risk and liquidity. On the basis of different nature of convertible bonds, the article uses component model to price "Julun convertible bond II" and find that this convertible bond has been overestimated.The last two parts will discuss clause design of convertible bonds in China. The developing situation in China leads to immature policies for convertible bonds. What’s more, the clauses of convertible bonds is stereotyped without basing on the situation of the issuing company itself, such as the time when the project can get output and the issuer’s own developing plan. This article aims to comprehensively and deeply analyze the contents and designing ideas of clauses for convertible bonds, at the same time keeping the economic nature of convertible bond into consideration. Then this article will point to the problems in clauses and offer reasonable proposals for the clause design of convertible bonds according to the actual situation of convertible bonds in China.Conclusions drawn from this article are:firstly, as a combination of bond, ie. equity and option, convertible bond can well balance the rights and interests of shareholders and creditors. Secondly, the return, risk and liquidity included in convertible bond can be used to offer good ideas when issuers design clauses. Finally, there still exist many problems in clause design of convertible bond in China and the issuers should not only take their own situation into consideration, but also they should think about the investors’demand.