Study On The Application Of Private Exchangeable Debt In M&A Financing

According to the statistics of Wind database,from January 2015 to September 2016,63 private exchangeable bonds were issued by Listed Companies in China.Among them,the number of exchangeable bonds issued in the first three quarters of 2016 increased 52% year on year.Especially since July-September 2016,the number of exchangeable bonds issued has increased rapidly,and the stock scale in China's capital market has been expanding.The essential structure of exchangeable bonds is the call options embedded with stocks in corporate bonds.There are two main functions: financing and holding.Financing and holding reduction are closely related to M&A and reorganization.Shareholders of the underlying enterprises can withdraw early by issuing exchangeable bonds during the limited sale period,thus avoiding the lock-in period of the M&A commitment.The M&A financing function of exchangeable bonds can raise funds for M&A financing activities of enterprises in a timely manner and alleviate the financial pressure of enterprises.The state vigorously promotes supply-side structural reform,encourages enterprises to integrate resources through mergers and acquisitions,and improves the quality of enterprises.Exchangeable bonds are a sharp tool to promote the speed of mergers and acquisitions.On December 12,2016,Zhuhai Epick Technology Co.,Ltd.,the leading domestic printer consumables manufacturer,announced the completion of the purchase and payment of Lexmark,an international printing giant.The acquisition cost 3.9 billion US dollars(about 26 billion RMB)and is the largest cross-border M&A case in the capital market printing industry so far.In order to successfully complete the acquisition and delivery,Epick issued the largest amount of private equity exchangeable bonds in the history of domestic capital market,which attracted wide attention in the market.As an innovative financial product,exchangeable bonds have a wide range of application value and prospects.Based on Epick's M&A of Lexmark,this paper analyses the role of private exchangeable bonds in M&A financing.Firstly,it introduces the concept of private exchangeable debt and related theories.Then the background,motivation,transaction structure and financing mode of M&A are introduced in detail.Finally,through the comparative analysis of exchangeable bonds and other financing methods,it is concluded that exchangeable bonds play a key role in the financing process of the whole M&A case.In the whole process of analysis,the theory is applied to practical cases,and the exchangeable bonds are introduced and analyzed comprehensively.It is believed that the application prospect of private exchangeable bonds in China's capital market is very broad and has great practical significance.At the same time,exchangeable bonds also have many potential risks in the process of financial innovation.Regulators should do a good job of top-level design,issuers should also improve their own risk prevention system,stable operation and maximize the effectiveness of exchangeable bonds.