(1) credibility. Like other bonds, convertible bonds stipulate interest rates and maturities. Investors can choose to hold mature bonds and collect principal and interest.
(2) equity. Convertible bonds were pure bonds before the conversion, but after the conversion, the original bondholders changed from creditors to shareholders of the company, and they can participate in the business decision-making and dividend distribution of the enterprise.
(3) convertibility. Convertibility is an important symbol of convertible bonds, and bondholders can convert bonds into stocks according to agreed conditions. Converting shares is an option that investors enjoy but ordinary bonds do not. Convertible bonds are clearly stipulated at the time of issuance, and bondholders can convert bonds into common shares of the company at the price agreed at the time of issuance. If the bondholders do not want to convert shares, they can continue to hold the bonds until the repayment period expires to collect the principal and interest, or they can be sold and realized in the circulation market.
Investors of convertible bonds also have the right to sell bonds back to the issuer. Some convertible bonds are attached with a resale clause, which stipulates that when the market price of the company's shares continues to be lower than the conversion price (that is, the price at which the convertible bonds are converted according to the agreement) to a certain extent, the bondholders can resell the bonds to the bond issuer according to the agreed conditions. In addition, the issuer of convertible bonds has the right to forcibly redeem bonds. Some convertible bonds are issued with a mandatory redemption clause, which stipulates that if the market price of the company's shares is higher than the conversion price for a certain period of time, the issuer can forcibly redeem the bonds according to the agreed conditions.
Because convertible bonds have options that ordinary bonds do not have, conversely, the interest rate of convertible bonds is generally lower than that of ordinary corporate bonds, and issuing convertible bonds by enterprises can help reduce their financing costs. However, convertible bonds can be converted into company shares under certain conditions, which will affect the ownership of the company.
Convertible bonds have the dual characteristics of bonds and stocks, and are more popular with investors. China's stock market conducted a pilot project of convertible bonds at an early stage, such as Shenzhen Baoan, China Textile Machinery, Shenzhen CSG and other enterprises all issued convertible bonds at home and abroad. 1996 the government of China decided to select qualified companies to carry out the pilot project of convertible bonds, and promulgated the Interim Measures for the Administration of Convertible Corporate Bonds on 1997.
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