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Last updated at: (Beijing Time) Tuesday, January 29, 2002

CSRC Regulates New Rules for Offering Convertible Bonds

The China Securities Regulatory Commission (CSRC) issued an announcement on the issuance of convertible bonds by listed companies recently to further tighten the regulations on conditions and procedure of convertible bond offering.


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The China Securities Regulatory Commission (CSRC) issued an announcement on the issuance of convertible bonds by listed companies recently to further tighten the regulations on conditions and procedure of convertible bond offering.

According to CSRC, listed companies' profit ratio of weighed average net asset in issuing convertible bonds should be kept at over 10 percent. As for those in the field of energy, raw material, infrastructure can be lower but no less than 7 percent, and the accumulated bond balance of the company should be no more than 40 percent of its net asset.

Moreover, after the issuance, the accumulated bond balance should be less than 80 percent of the net asset of the company.

The new rules also regulate that funds raised by convertible bond offering are supposed to be invested in the company's main business rather than in other purposes.

The announcement also requires securities firms and listed companies stay away from hypothecating for the issue of convertible bonds by a listed company.



What's Convertible Bond

Bonds that can be converted into a predetermined amount of the company's equity at certain times during its life. Convertibles are sometimes called CVs.

Convertibles typically offer a lower yield than a regular bond because of the option to convert into stock and collect the capital gain. This lower yield makes them less attractive to the average investor. However, should the company go bankrupt, convertibles are ranked the same as regular bonds so you have a better chance of getting some of your money back.

Convertible bonds provide:

  • fixed rate borrowing for the medium term
  • debt funding without a rating
  • a low likelihood of redemption
  • equity-linked funding without impacting your share price




    • By PD Online Staff Li Yan

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