Domestic convertible-bond issues from mainland-listed companies have picked up this year, as a protracted bear stock market and new regulations reduce supply and demand for secondary share offers.
But the honeymoon period may be swiftly coming to an end, with deepening stock-market pessimism, a recent increase in bank reserve ratios affecting bond prices and a rising institutional-investor revolt against large convertible issues hurting interest in the bonds.
There were 11 new convertible-bond issues in the mainland in the first eight months, nearly triple the four offerings for all of last year, according to Dealogic data.
Mainland-quoted firms raised 12.79 billion yuan (HK$11.98 billion) through domestic convertible-bond issues between January and August, almost four times the 3.32 billion yuan made last year.
With mainland share indices down roughly 70 per cent from June 2001 levels and their major, often state-owned, shareholders reluctant to make new investments, listed companies can hope to raise little from share placements to existing shareholders.
On top of that, the China Securities Regulatory Commission (CSRC) in July last year imposed stricter requirements on secondary public offers, capping the size of issues at no more than a company's net-asset value in the previous financial year. For larger offerings, majority approval from investors of tradeable shares is required.
The new rules have dried up a key source of capital for listed firms.