A Study On The Arbitrage Behavior Of Private Exchangeable Bonds For Large Shareholders

Since the official issuance of the first private exchangeable bond in 2013,the private exchangeable bonds market in China has achieved rapid development.By the end of 2017,175 private exchangeable bonds have been issued,with a total scale about 162 billion yuan.Due to the special advantages of private exchangeable bonds in reducing holding-shares,it becomes very popular among large shareholders of the listed companies.With the deepening understanding on private exchangeable bonds,issuers combine private exchangeable bonds with other capital tools for arbitrage,of which 'private placement and private exchangeable bonds' is the most common arbitrage mode.Under this mode,major shareholders can increase their holdings of target company at discount by private placement and decrease their holdings of target company at premium by issuing private exchangeable bonds,thereby acquiring risk-free arbitrage.Based on the above method,Tunghsu Group can successfully achieve arbitrage and also maintain controlling power of Dongxu photoelectric.Although the whole arbitrage process did not violate existing laws and regulations,the large shareholders' behavior of using its controlling power and information superiority to achieve arbitrage has actually disturbed the fair market order.At the same time,the interest of investors holding marked shares can be damaged during the arbitrage process,because of the fluctuations in prices of the marked shares before and after the changing period of private exchangeable bonds.According to the above issues,this article is designed to figure out the causes of arbitrage from the perspective of private exchangeable bonds by analyzing the behaviors of Tunghsu Group.Furthermore,policy suggestions have been put forward to eliminate arbitrage opportunities,which can maintain the fairness of capital market,protect the interest of investors and promote the healthy development of private exchangeable bonds market.There are four methods mainly used in this article:the comparative research method,the case study method,the event research method and the standard research method.The whole article is composed of five parts.The introduction part includes the research background,the research significance and the related literature on private exchangeable bonds and the arbitrage behavior of large shareholders.The first chapter defines the concepts of the arbitrage behavior of large shareholders and private exchangeable bonds,and then analyzes the relevant theories.Finally,it summarizes the arbitrage mode of large shareholders by private exchangeable bonds.The second chapter describes the basic situation of Tunghsu Group and Dongxu photoelectric and then summarizes the entire arbitrage process to explore the motives of private exchangeable bonds for Tunghsu Group during the arbitrage process.The third chapter is the major part of case analysis.From the perspective of private exchangeable bonds,the setting of private exchangeable bonds terms is discussed in this section.After that,the timing of the share swaps and the market reaction of the share swaps have also been analyzed in order to figure out the implementing process of Tunghsu Group's arbitrage according to two key links(bond issue and share swap)of private exchangeable bonds.In the last chapter,it makes an analysis of the limiting factors existing in the entire arbitrage process and some solutions of Tunghsu Group to reveal the reasons for arbitrage.At the end of this paper,the conclusions are drawn from the above analysis and some policy suggestions are put forward.On the basis of the above analysis,this article draws the following conclusions:Firstly,it has played an important role in achieving arbitrage that the provisions of private exchangeable bonds can be set flexibly and the reduction of holding-shares has advantages to weaken its impact on the secondary market of target company.Secondly,large shareholders make use of information superiority and controlling power to select appropriate time to do the private placement and share swap.At the same time,they can manipulate the stock price to rise and promote the bondholders to exchange shares,which bring about arbitrage behavior and fluctuations in the secondary stock market.Thirdly,the regulatory system of private exchangeable bonds is not perfect in our country,which provides more arbitrage opportunities for large shareholders in the private exchangeable bonds market.