A Case Study On Convertible Bond Financing Of LJ Company

Convertible bond,as a hybrid financing instrument that integrates the features of debt,equity and options,is an indispensable part of the modern financial industry.These years,the opening up process and development of the Chinese capital market has reached to a higher level.With the implementation of a series of new refinancing regulations of the China Securities Regulatory Commission,convertible bonds have attracted great attention in the industry and abroad.More and more listed companies have issued convertible bonds to alleviate liquidity risks.The convertible bond market has ushered in unprecedented development opportunities.However,current researches on convertible bonds conducted by Chinese scholars are mainly focusing on pricing,valuation,or wealth effects.There are few studies about the evaluation of the comprehensive impact on the issuance of convertible bonds by listed companies from the perspective of stakeholders.Therefore,in order to provide a more integrated reference for listed companies when choosing from refinancing options,research on the influence of convertible bond financing is of great significance.This study takes LJ Corporation,a leading listed company in the photovoltaic industry,as the research object.First,the background,process and results of the convertible bond financing schedule are explained.Afterwards,the program’s effects on the main groups of stakeholders,like the management,shareholders,investors,and creditors,are studied by applying event analysis,model analysis,financial analysis and other methods,from a qualitative and quantitative way.Finally,inspirations from the case about convertible bond financing of the listed company are demonstrated.Through the analysis of this case,the core findings are as follows:1.From the perspective of financial data,financial indicators of LJ Corporation did not experience dramatic fluctuations after the issuance of the convertible bonds.The main reason was that photovoltaics belonged to an asset-heavy industry.LJ Corporation invested the funds raised from the issuance into the R&D and production projects of monocrystalline silicon rods,monocrystalline silicon wafers,and monocrystalline cells.Such projects were in requirement of relatively large,long-term investments.Therefore,the short-term effect of the issuance was not as obvious as the long-term.2.From the perspective of stakeholders,the profitability and operational capability of LJ Corporation had improved after the issuance,which had been a positive incentive to the management team.Nevertheless,the conversion time of convertible bonds was relatively short,which meant that LJ Corporation did not take fully advantage of or maximize the delay effect of convertible bonds on stock dilution.And the control rights had been impacted also from the standpoint of the original shareholders.Since the operating performance of the company was stable,investors’ long-term and short-term investment returns could be guaranteed.Although the long-term solvency of the company was affected by the issuance of convertible bonds,the debt structure had been improved when the financial risk for institutional creditors had reduced.