Financing of listed companies
At present, the sources of funds of listed companies in China mainly include endogenous financing and exogenous financing.
Because financing is carried out within the company, there is no need to actually pay interest or dividends outside, which will not reduce the company's cash flow; At the same time, because the funds come from inside the company, there is no financing cost, so the cost of internal financing is much lower than that of external financing.
The normal production and operation activities of the company and the expansion of production capacity all need a lot of funds to support them. In addition to internal capital, a considerable part of these funds have to rely on external financing. External financing of listed companies can be divided into debt financing methods of borrowing from financial institutions and issuing corporate bonds; Equity law of allotment and issuance of new shares; Semi-equity and semi-debt issuance of convertible bonds.
Bank loan is the main way of debt financing at present. Its advantages are relatively simple procedures, relatively low financing costs and strong flexibility. As long as the enterprise benefits well and financing is easy, its disadvantages are that it generally needs mortgage or guarantee, the financing amount is limited, the pressure of repayment and interest payment is high, and the financial risk is high.
Corporate bonds refer to the creditor's rights and debt certificates issued by the company and promised to repay the principal and interest within a certain period of time. It embodies the behavior between the debtor and the creditor. Bonds are essentially the relationship between borrowing money and paying back money, but the fundamental difference between bonds and loans is that bonds can be publicly traded. Loans are not publicly traded unless they are bonds. Compared with equity financing, the financing cost of bond financing is lower, which can play the role of financial leverage and ensure the control of equity over the company. However, it has similar shortcomings to bank loans, that is, high financial risk, many restrictions and limited financing scale. For companies with capital, bond financing and bank loans have similar characteristics, which are generally called debt financing.
Equity financing refers to the company issuing stocks for financing. For listed companies, the funds raised by issuing stocks belong to company capital; For shareholders, the shares held represent the ownership of the company's net assets. Compared with debt financing, equity financing has its own advantages, such as: shares belong to the company's permanent capital and do not need to repay or bear fixed interest expenses, thus greatly reducing the company's financial risks; Because the expected return is high, it is easy to transfer and absorb social capital. However, there are inevitable shortcomings in equity financing, such as high issuance cost and easy dispersion of equity.
Comparison of financing methods of listed companies
It can be seen that each financing method has its unique advantages, but it also has different shortcomings. Generally speaking, issuing corporate bonds and bank loans have many restrictions in policies and other aspects, so they are not the main financing methods adopted by listed companies. At present, the financing methods of listed companies in China are mainly issuing and allotment equity financing and issuing a new type of bond-convertible bond.
1. Comparison of financing conditions
(1) profitability requirements. The issuance requires that the company's return on net assets after deducting non-recurring gains and losses in the last three fiscal years be no less than 6% on average. If it is less than 6%, the weighted return on net assets in the year of issuance shall not be less than the year before issuance. The rights issue requires that the company's return on net assets after deducting non-recurring gains and losses in the last three fiscal years be less than 6% on average. The issuance of convertible bonds requires the company to make profits continuously in the last three years, and the average return on net assets in the last three years is above 10%, which can be slightly lower for energy, raw materials and infrastructure companies, but not less than 7%.
(2) requirements for dividends. Both additional issuance and rights issue require the company to pay dividends in the past three years; The issuance of convertible bonds requires cash dividends in the last three years, especially in the last year.
(3) Time interval from the previous period. The time interval required for issuance is 12 months; The time interval required for distribution is a complete fiscal year; However, there is no specific provision for issuing convertible bonds.
(4) the issue target. The additional issuance targets are original shareholders and new investors; The object of rights issue is the original shareholder; The target of issuing convertible bonds includes existing shareholders or new investors.
(5) Issue price. The additional price-earnings ratio is 20 times; The allotment price is higher than the net assets per share and lower than the secondary market price, and in principle it is not lower than 70% of the secondary market price, which shall be determined through consultation with the lead underwriter; The price of issuing convertible bonds is based on the average closing price of the company's shares in the 30 trading days before the prospectus is published, and it has increased to a certain extent.
(6) the number of issues. The amount of additional issuance is adjusted according to the amount of raised funds and the issue price; The number of rights issues shall not exceed 30% of the original share capital, and if the promoters subscribe in full in cash, they may exceed the upper limit of 30%, but shall not exceed100%; The number of convertible bonds issued shall be above 1 100 million yuan, and shall not exceed 40% of the issuer's net assets or 70% of the company's total assets, whichever is lower.
(7) Profit requirements after issuance. The profit requirement of additional issuance is that the weighted average return on net assets in the year of issuance is not lower than the level of the previous year; The weighted average return on net assets in the current year shall not be lower than the bank deposit interest rate in the same period; The issuance of convertible bonds requires that the year of issuance is enough to pay the bond interest.
2. Comparison of financing costs
Issuance and rights issue are both stock issuance. Because the rights issue is aimed at the old shareholders, the operation procedure is relatively simple and the issuance difficulty is relatively low, and there is little difference between the financing costs of the two. Under the pressure of the market and shareholders, listed companies have to maintain a certain level of dividends. Theoretically, the cost and risk of stock financing are not low.
At present, the interest rate of bank loans is 6.2%. Because the bank loan fees and other related expenses are very low, if calculated at 0. 1%, its financing cost is 6.3%. The interest rate of convertible bonds is generally between 1%-2%, with an average of 1.5%. However, for the issuance of convertible bonds, underwriting fees are required (underwriting fees are 1.5%-3%, with an average of no more than 2.5%), and the expense ratio is estimated to be 3.5%. Therefore, if the convertible bonds are not converted into convertible bonds, at the same time, the interest paid by the company can be charged before the company income tax. However, if all or part of the convertible bonds are converted into stocks, the cost should consider the company's dividend level and other factors. The financing cost of different companies is also different, which has certain uncertainty.
3. Comparison of the advantages and disadvantages of three financing methods
(1) issuance. Additional issuance is the sale of shares to all public investors, including the original shareholders. Its advantages are less restrictive conditions and large financing scale. Compared with rights issue, additional issuance is more in line with the principle of marketization and can better meet the financing requirements of the company. At the same time, due to the high issue price, it is generally not limited by the company's secondary market price, which can better meet the company's financing requirements. However, compared with the rights issue, there is not much difference in essence, and they are all equity financing.
(2) rights issue. Rights issue, that is, placing new shares to old shareholders according to a certain proportion. Because it does not involve the balance of interests between new and old shareholders, and it is simple to operate and quick to approve, it is the most familiar and handy financing method for listed companies. However, with the management's increasingly strict requirements for the rights issue assets, that is, the rights issue is carried out in cash, and the rights issue cannot be carried out in assets. At the same time, with the continuous development of China's securities market and more in line with international practice, it will gradually fade out of the historical stage of refinancing of listed companies.
As equity financing, the advantages of issuing shares and placing shares are: (1) no interest is required, and the company will consider whether to pay dividends only when it is profitable and has sufficient cash. The decision on whether to pay dividends and the proportion of dividends is made by the company's board of directors. (2) the requirement to repay the principal free of charge. When deciding the retained profits of existing shareholders and placing new shares, the board of directors can independently control the proportion and timing of retained profits and placing new shares, with low operating costs. (3) Because there is no interest expense, the operating benefit is better than debt financing.
The disadvantages of issuing shares and placing shares are as follows: (1) After financing, the share capital is greatly increased, and the benefits of investment projects are difficult to maintain the corresponding growth rate in a short period of time. The business performance indicators of enterprises are often diluted and decreased, which may lead to the phenomenon that the benefits after financing are not as good as those before financing, thus seriously affecting the company's image and stock price; (2) The financing cost is high, usually 5% ~10% of the financing amount; (3) Need to consider whether it will affect the existing shareholders' control of the company; (4) Dividends can only be distributed in after-tax profits, and it is not as good as tax reduction for liabilities.
(3) Convertible bonds. Convertible bonds have the dual characteristics of debt financing and equity financing, and belong to debt financing before conversion, which is more flexible than the other two financing. When the stock market is depressed, investors can choose to enjoy interest income; When the stock market is bullish, investors can sell it to get the difference or convert it into stocks, and enjoy the benefits of rising stock prices. Because convertible bonds have the guarantee of recovering the principal and the income of coupon, their investors are often protected by the right to sell back, and the investment risk is relatively small but the income may be great. At the same time, the pressure of conversion and redemption of convertible bonds also restricts the managers of the company, forcing them to make careful decisions and strive to improve their business performance. These characteristics determine that it is a win-win choice for listed companies and investors, and it is very attractive to investors.
For listed companies, the advantages of issuing convertible bonds are obvious:
(1) Low financing cost: According to the regulations, the coupon rate of convertible bonds shall not be higher than the bank deposit interest rate for the same period, with a term of 3-5 years. If it is not converted, it is equivalent to issuing long-term bonds with low interest rate, which reduces the financing cost of the issuing company; However, if detachable convertible corporate bonds are issued (detachable convertible corporate bonds are a combination of warrants and corporate bonds, and the corporate bonds and warrants in this product can be traded separately after listing, that is, they are combined at the time of issuance and automatically split into corporate bonds and warrants after listing), the financing cost of the issuing company will be further reduced.
(2) The financing scale is relatively large: since the conversion price of convertible bonds is generally higher than the market price of the company's shares when the convertible bonds are issued, if the shares are converted, it is equivalent to issuing shares higher than the market price. Under the condition of the same share capital expansion, more funds can be raised for the issuing company compared with additional issuance and rights issue.