More than 50 convertible bonds fell below par

In recent years, the convertible bond market has witnessed history. Previously, the delisting of Sote convertible bonds and Blue Shield convertible bonds broke the record of zero delisting in the convertible bond market. After entering the delisting sector, the Sote surrender bond fell to 0.001 yuan per piece, refreshing the lower limit of the convertible bond price.

There has been a rare scene in the convertible bond market recently. On April 16, among the listed convertible bonds, the closing price of more than 10% of the convertible bonds fell below par value. Today, some convertible bonds rebounded with the underlying stock, and the price returned to above 100 yuan. However, as of the close, there were still 53 convertible bonds with prices below $100.

Recently, the China Securities Regulatory Commission (CSRC) formulated and issued the "Opinions on the Strict Implementation of the Delisting System", and the exchange revised and improved the relevant delisting rules. The new delisting regulations focus on improving the overall quality of existing listed companies, and through strict delisting standards, we will increase efforts to clear out "zombie shells" and "black sheep" and reduce the value of "shell" resources.

After the release of the new delisting rules, the convertible bonds issued by some companies with relatively weak fundamentals were affected. Market participants believe that, on the whole, the intensification of delisting supervision will further exacerbate the credit stratification of the convertible bond market, investors will prefer convertible bonds issued by enterprises with better qualifications, and convertible bonds issued by enterprises with low ratings and weak fundamentals may be gradually abandoned.

A rare scene in the convertible bond market

On April 16, there was a rare scene in the convertible bond market, as the underlying stock trend continued to weaken, and the price of many convertible bonds fell below par. According to the statistics of the Securities Times reporter, on April 16, there were as many as 60 convertible bonds that fell below par value, accounting for 11.19%. On April 17, as the underlying stock rebounded, the price of some convertible bonds returned to above 100 yuan. However, as of the close of trading on the 17th, there were still 53 convertible bonds with prices below 100 yuan. Compared with the same period in 2023, there has been a significant increase in the number of convertible bonds that have fallen below par recently.

Generally speaking, when the price of a convertible bond falls below $100, it usually means that the market's expectation of the credit risk of the issuing company or the entire market is rising, and investors are worried about the risk of declining returns or investment losses in the future.

For convertible bonds, the inclusion of the underlying stock in the delisting risk alert (*ST) or other risk alert (ST) or even the delisting of the underlying stock will cause investors to worry about the credit risk of the convertible bond. Zeng Hengwei, a partner of Paipaiwang Wealth Management, told the Securities Times that the new delisting rules have profoundly affected the current convertible bond market, mainly because the new delisting rules will cause investors to pay more attention to credit risks. The new regulations have intensified the crackdown on financial fraud and other violations of laws and regulations, leading to a reassessment of the credit profile of convertible bond issuers. Convertible bonds with low ratings and poor qualifications face revaluation, and investors need to pay more attention to the financial health and solvency of issuers.

In his view, the implementation of the new delisting rules may also change the overall ecology of the convertible bond market, prompting market participants to pay more attention to risk management and compliance operations, which will help promote the healthy development of the convertible bond market and enhance investor confidence in the long run.

Weakly qualified convertible bonds are expected to accelerate the liquidation

Recently, the new "National Nine Articles" were issued, clearly proposing to "deepen the reform of the delisting system and accelerate the formation of a normalized delisting pattern that should be withdrawn and cleared in a timely manner". The China Securities Regulatory Commission (CSRC) and the stock exchange have successively issued supporting documents to adjust a number of rules. Among them, the most important thing to pay attention to in the new delisting regulations is that the threshold for financial fraud for delisting indicators for major violations has been significantly lowered, the rules for regulatory delisting have also ushered in major changes, and the financial and trading indicators have tended to be improved. In addition, the dividend decision of listed companies will also have a direct impact on the implementation of ST, which is also one of the policies that need to be focused on in this round.

It is worth noting that due to a certain degree of misunderstanding of the new regulations in the market, "small-cap stocks" have fallen sharply continuously, which has also triggered investors' concerns about the convertible bond market.

In fact, the main purpose of this delisting indicator adjustment is to increase efforts to clear out the "zombie shell" and "black sheep". According to the China Securities Regulatory Commission's calculations, the number of companies that will be delisted by the Shanghai and Shenzhen stock exchanges next year is expected to be about 30, and about 100 companies may touch this indicator and implement delisting risk warning next year, and these companies will have more than a year and a half to improve their operations and improve quality, and they will not be delisted until the end of 2025. In terms of market capitalization indicators, only 4 main board companies in Shanghai and Shenzhen currently have a market value of less than 500 million yuan, and there are no companies on the Science and Technology Innovation Board and ChiNext that are close to 300 million yuan in market value delisting.

"Based on the principle of bond issuance under the approval system of the China Securities Regulatory Commission, listed companies that meet the conditions for bond issuance are only in the top 30% of the listed companies in the whole market according to their 2022 annual reports. He Jinlong, general manager of Umili Investment, said in an interview with a reporter from the Securities Times that excluding a very small number of convertible bond issuers that have been ST, the new regulations have disturbed the market in the short term, but the overall convertible bond market has rebounded on April 17 based on the support of the terms of the convertible bond and its characteristics of debt support.

He Jinlong believes that more than 80% of the current convertible bond market highlights the value of pure debt, and the overall allocation value of value return is high. The yield to maturity in the convertible bond market is relatively less affected by changes in the stock market, which is the main reason why the convertible bond market has outperformed equity recently. Therefore, in the vast majority of market conditions in which convertible bonds reflect the nature of debt, factors such as performance, bond balance, book cash comparison, solvency, bond rating, pledge ratio of major shareholders, and liquidity ratio are the main factors that will limit the downward pressure on convertible bonds in the future market market, which investors need to track and pay attention to.

The research report of Minsheng Securities pointed out that the adjustment of the new regulations has an important impact on the convertible bond entity, especially the quantitative indicators such as dividends and delisting rules have important reference significance for the credit risk of the convertible bond entity. From the current point of view, there is still a certain gap between the dividend level of a large number of convertible bond entities and the minimum standard, and relatively few convertible bond entities have delisting risk targets. As the maturity of convertible bonds approaches, it is recommended to pay close attention to the relevant indicators of the entity and better judge the actual debt repayment risk of the convertible bonds in combination with the existing credit analysis framework.

Liu Yan, chairman of Anjue Assets, told the Securities Times that for large-cap blue-chip companies, due to their stable operating conditions and good market reputation, the impact of the new delisting regulations on them is not significant. For small-cap stocks, the situation is more complicated. A comprehensive and detailed assessment of the solvency, fundamentals and future development potential of these companies is required. For those high-quality companies with outstanding solvency, solid fundamentals and good development prospects, they will continue to grow steadily and demonstrate strong market competitiveness. However, for those companies that cannot meet market requirements in terms of solvency, company fundamentals and future development, the new delisting rules will accelerate the pace of their elimination from the market.

Convertible bond investment needs to enhance risk management capabilities

As a variety of convertible bonds that are both offensive and defensive, the offensive nature is reflected in the low premium rate of the convertible bond and the strong substitution effect of the underlying stock, and the defensive nature is reflected in the low price of the convertible bond and the obvious debt bottom.

In the past few years, investors can basically "lie down and win" as long as they grasp the "double-low strategy", but now, with the risk of delisting of individual underlying stocks, the lower limit of the convertible bond price continues to set new records, and the "double-low strategy" is no longer a simple selection of low-priced, low-conversion premium convertible bonds.

"In the face of the current market changes, investors should enhance their risk awareness and avoid blindly investing in high-risk convertible bonds. At the same time, it prudently analyzes the fundamentals of the issuer of the convertible bond and selects a stable investment target. Zeng Hengwei said that investors can also reduce the risk of single convertible bonds through diversification, and pay close attention to policy dynamics and market changes, and adjust investment strategies in a timely manner. In the event of delisting, they should protect their own rights and interests in accordance with the law to ensure the safety of investment.

Zeng Hengwei believes that the new delisting rules have had a profound impact on the convertible bond market, and investors need to adapt to the new environment, improve their risk management capabilities, and make more rational and prudent investment decisions.

The new delisting rules will undoubtedly effectively optimize the supply and demand relationship in the market and inject new vitality into the market. From a long-term perspective, it can strengthen the core orientation of fundamental investment, optimize the trading environment, reduce abnormal market volatility, and then attract more funds to flow into the market and promote the healthy development of the market.

In the face of such market changes, Liu Yan said that future investors should be more cautious when choosing convertible bonds, and should be cautious about the convertible bonds issued by companies with relatively weak fundamentals to ensure the soundness and profitability of investment decisions. In the new market environment, investors can make more informed choices and jointly promote the prosperity and development of the market.

Editor-in-charge: Wan Jianyi

Proofreading: Wang Jincheng

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