Case Study On Convertible Bond Financing Of XG Company

Financial management mainly includes financing, investment, operation and profit distribution problem, and the key is financing. The Company’s business and development in a great extent depends on whether there is a stable source of funding, whether there are sufficient funds to support. Therefore, in order to meet the needs of different companies on financing, a variety of financing instruments came into being. But the traditional financing tools are more or less inherent defects, so that it cannot be in the low cost financing and low debt service pressure to the optimal ratio. And convertible bonds with its lower financing costs, a smaller solvency and more flexible operation and many other advantages, the moment to become one of the major listing Corporation financing.Convertible bond is on the basis of corporate bonds, so that the holder can be in a certain period of time according to the agreed price will convert the bonds to the issuer’s common stock a new financial derivatives. It also has the characteristics of stocks, bonds and option, which can make up for the inherent defects of the traditional financial instruments in a certain extent, and can meet the needs of investors in the pursuit of profit maximization motives.This paper mainly adopts the research method of case analysis, use XG company issue convertible bonds as the main research object. First of all, this paper selects the case company (XG Company) for a brief introduction, including the company’s general situation of XG Company and the basic situation of the convertible bonds issued by the company. Then through the four aspects of the controlling shareholder, cost management, institutional investment and management mechanism is a small story to reveal may lead to XG Company of convertible bond expires outstanding convertible reasons. Secondly on the basis of understanding the basic situation of XG company, combined with the agency cost theory, capital structure theory and signal transmission theory, using qualitative and quantitative method to deeply analyze the problems, mainly related to four aspects of capital structure, management, governance mechanism and price. Finally, the XG Company in the use of convertible bonds in the process of financing problems arising from the reasons summed up the corresponding implications and recommendations. The purpose of this paper to can let the company senior management personnel understand the convertible bond is a double-edged sword, if all the conversion words, resulting in equity dilution; if all the no conversion of words, it will cause a huge debt pressure. So that similar companies can be based on their own operating conditions and solvency, cautious choice.