The most expensive convertible bonds suffered a rare plunge!
On the 12th, China Mining Convertible Bonds, which had the highest market price, suffered a heavy setback, falling 19.69% that day. Data shows that China Mining Convertible Bonds, which closed at 661.80 yuan on the 11th, fell to 531.5 yuan on the 12th.
Sinomine Convertible Bonds is the abbreviation for the convertible bonds issued by listed company Sinomine Resources. China Mining Resources, which plans lithium mines and lithium salt projects, has recently been favored by organizations in non-public offerings. However, unexpectedly, this has destroyed the valuation of China Mining Convertible Bonds. The reason behind it actually comes from a pricing formula. This time, China Mining's convertible bonds have experienced a rare plunge, which is also very "lethal" to the market.
Rare plunge
On the 12th, China Mining’s convertible bonds fell 19.69%, which was due to the downward shift in valuation caused by the increase in the conversion price.
Sinomine Convertible Bonds is the abbreviation of convertible bonds issued by Sinomine Resources, a listed company. On April 7, China Mining Resources issued an announcement to increase the conversion price of China Mining Convertible Bonds from 11.01 yuan/share to 15.88 yuan/share. This upward adjustment paved the way for the value of China Mining's convertible bonds to shrink by 30%.
This unobtrusive announcement by China Mineral Resources did not attract the attention of some investors. “If you are not familiar with the rules, this is an investment pit that is difficult to avoid.” A senior convertible bond investor told reporters.
The reason for the adjustment of the conversion price is that China Mining Resources conducted a non-public issuance of shares. According to the rules, the non-public issuance of shares will trigger an adjustment in the conversion price of China Mining Convertible Bonds.
China Mining Resources’ non-public issuance of new shares was listed on the Shenzhen Stock Exchange on April 12. According to the solicitation instructions and the Securities Regulatory Commission's rules on convertible bonds, the conversion price of "Sinomine Convertible Bonds" will be adjusted accordingly, from the original 11.01 yuan/share to 15.88 yuan/share.
According to the data, the conversion price of China Mining Convertible Bonds before the revision was 11.01 yuan, and the issuance price was as high as 63.39 yuan. The new shares accounted for 10.25% of the original shares. According to the calculation of the rules, the funds raised this time increased the company’s per share. The net assets of the shares and the conversion price were also raised to 15.88 yuan. "Essentially, the non-public issuance project of China Mining Resources is highly sought after by the market, resulting in the price per share of newly issued shares being much higher than the previous conversion price." said the above-mentioned senior convertible bond investor.
Data show that the funds raised from the non-public issuance of shares by China National Mineral Resources were mainly invested in the hot lithium mine and lithium salt projects.
Who is harmed by the increase?
Data calculations show that there are few cases of conversion price increases in the convertible bond market, and more cases of downward revisions. Because downward revisions can increase the value of convertible bonds, while upward revisions will decrease the value of convertible bonds.
Once the conversion price increases, it means that the share of each convertible bond converted into company shares will immediately decrease, thus causing the conversion value to fall. Taking China Mining Convertible Bonds as an example, the conversion price increased from 11.01 yuan to 15.88 yuan, which caused the conversion value of China Mining Convertible Bonds to drop from 656.8 yuan to 449.6 yuan, a drop of up to 30%.
On the 12th, after China Mining’s convertible bonds plunged 19.69%, there is still a conversion premium rate of 18%. This means that China Mining Convertible Bonds still have 18% room for correction compared with the underlying stocks. On the 11th, the market price of China Mining's convertible bonds was 661.8 yuan, and the conversion premium rate was 0.75%, which was basically a balanced state.
"Since there have been few cases of similar plummeting before, investors need to pay more attention to company announcements. The details of convertible bond investment are very important, and it is not a guarantee of profit or loss." Zhang Xiaodong, general manager of convertible bond private equity Guangzhou Siying, suggested that in the face of such "destruction" More announcements should be made to warn of the dangers of raising the conversion price.