Financing Difficulties And Downgrading Conversion Price Of Convertible Bonds

Convertible bonds started late in China and developed slowly in the early stages.In February 2017,the rules on refinancing and reduction of holdings were tightened;in September of the same year,the new rules for convertible bonds established a new subscription mechanism.These two have respectively increased the supply and demand of convertible bonds,and the proportion of convertible bond financing in refinancing increased from 4.04% in 2017 to 26.49% in 2019.After two years of rapid development,convertible bonds have a certain market foundation and are about to enter a period of high adjustment.During the adjustment period,the main body of the convertible bond market returned to rationality,and the terms and pricing of convertible bonds needed to be studied in depth to provide theoretical support for the issuance and trading of convertible bonds.Most of the previous studies on the downward revision of the convertible bond conversion price are based on the criteria for maximizing shareholders ’equity,and analyze the impact of the convertible bonds repair on shareholders’ equity.The resale is linked,and it is concluded that the company will not take the initiative to revise the convertible bond to share price unless faced with resale pressure.However,with the increase in the size of convertible bond financing and the increase in the number of issuances,convertible bond issuers have moved down.There are a total of 41 convertible bonds on the market that have undergone downgrades,but only two downgrade of convertible bonds has occurred,During the resale period.Therefore,under the new market background,it is more theoretical and practical to explore the issue of convertible debt repair under the financing dilemma.Based on the research review of convertible bond repair and convertible bond pricing,this article summarizes the development history and current status of convertible bonds in China.Through comparison with ordinary bonds,this article analyzes the special provisions of convertible bonds,especially the revised provisions and related pricing models.By analyzing the case of the blue label convertible bond,this article finds that under the financing dilemma,the blue focus takes the minimization of the actual cost of financing as the judgment standard.In order to achieve the purpose of prompting investors to convert stocks as soon as possible and change the use of convertible bonds,the blue-label conversion bonds have been revised several times,and the conversion of convertible bonds has finally been realized.This will help the company to get rid of financing difficulties to a certain extent;but at the same time it will damage the interests of the company’s original shareholders,especially small and medium shareholders.Through theoretical and case analysis,the following points are obtained in this article: First,the judgment criteria for downgrade of convertible bonds is not only the maximization of shareholders’ rights,but also the minimization of financing costs.In order to avoid paying interest,convertible bond issuers have an incentive to promptly convert investors at the expense of shareholder equity.The second is that after the issuance of convertible bonds,the conversion of convertible bonds is the only effective way for listed companies to regulate convertible bonds.The power of this reduction is in the hands of the board of directors of the issuing company.In the previous research,the company as a whole analyzed the decision to downgrade Is not rigorous.Third,in the process of pricing the convertible bonds using the BS model,this paper finds that the conversion of the convertible bond has a repricing effect.This effect is caused by the possible downgrade of convertible bonds to a certain downgrade.