The convertible bond circle has been in an uproar these days. The reason was that a listed company called Lingnan Shares announced that it had limited funds and was unable to repay the principal and interest of the Lingnan convertible bonds that were originally due on August 15, about 650 million yuan, which was already a substantial default.
(For new stockholders, let me briefly explain what convertible bonds are. They are bonds issued by listed companies. Unlike ordinary bonds, if a listed company does not have the money to redeem convertible bonds, it can convert all of these bonds into stocks and sell them on the stock market, which is equivalent to asking shareholders to repay the company's debts. In the history of A-shares, most convertible bonds were not repaid in the end, and were converted into stocks and sold.)
I checked the company's finances. It has 247 million yuan in cash on its books (according to A-share practice, this money may not actually exist or can be used). It also has 2.24 billion yuan in short-term debt and 1.66 billion yuan in debt due within one year. Its liquidity has indeed dried up.
What's worse is that the company's current share price is 0.93 yuan, and it has been below 1 yuan for three consecutive days. You know the situation. It has one foot in the grave. Once the listed company delists, the repayment of the convertible bonds will be even more distant.
There is another detail, Lingnan shares is a state-owned enterprise, controlled by Zhongshan state-owned assets. This is also the reason why many investors are willing to seek wealth and fortune at the risk of danger. They firmly believe that state-owned enterprises will not fail to repay publicly issued bonds in consideration of social impact. Even if the company has no money in its account, they think the government will find another way.
As a result, the situation became worse and worse, and the Securities Times headline article "It's time to give up the belief in the rigid redemption of convertible bonds of state-owned enterprises" appeared.
The content is a severe criticism for investors: they are obsessed with the background, have lazy thinking, and are "comfortable" in the warm room of rigid redemption, and then they say that bond defaults are a small step for the market and a big step for high-quality development.
ah??
No, buddy, you are burning my CPU. Isn't it natural to pay back debts since ancient times? How come people who don't pay back debts are pushing China's capital market forward?
I wanted to read the full text, but the link to the original article from Securities Times that I searched on Baidu was no longer available, but I could still find a lot of screenshots of the excerpts on social media. Well, I understand what the author wants to express to some extent, but he lacks respect for the legitimate rights and interests of the victims, and is not suitable for the habitual practice of celebrating funerals.
Returning to the objective facts, investors of convertible bonds should indeed re-price the risk of credit bonds reasonably, even if the main borrower behind the debt is a state-owned enterprise. In fact, in the history of A-shares, convertible bonds have been 100% redeemed and there has never been a default. This is not because the credit of the companies in the past was good, but because of historical background:
Firstly, the qualifications for convertible bonds were previously tightened, and the entities that could issue bonds were mostly high-quality companies.
Secondly, the delisting mechanism was in name only. Even the worst companies could survive in the A-share market. All convertible bonds that could not be repaid were converted into stocks, and the debts were repaid by shareholders.
About four or five years ago, the issuance of convertible bonds ushered in a blowout, and the supervision opened the door to financing. Any dog or cat could come to issue bonds to raise money. At that time, I felt that this was laying a mine for the future. Then, the delisting of par value was greatly promoted. The number of companies delisted each year increased from single digits to more than 50. Many stubborn households with poor financial conditions could no longer stay in the A-share market.
Those who bought convertible bonds at this time were horrified to find that their debts... could no longer be covered by shareholders
Don’t think that state-owned enterprises are just like gold. The credit of public-owned entities is also divided into different levels. State-owned enterprises under the central government are indeed OK, but provincial state-owned enterprises are divided into different levels. Economically strong provinces along the coast are still responsible, but inland ones should be more cautious. As for state-owned enterprises at the prefecture level, they should be market-oriented and not blindly believe in public ownership.
A-shares have come to this point today, and everyone involved in this industry, including securities employees, analysts, fund managers, fund investors, stockholders, investment advisors, accountants, self-media bloggers... everyone is suffering from the retaliation of the market, and everyone is paying a price.
At this time, convertible bond investors who have been relying on A-shares to suck blood and rely on institutional arbitrage should wake up. Winter is coming, so keep an eye on your money.
……
There is still some space left, so let’s talk about a question you often ask, which is that I can’t squat.
It's not that I don't know how to squat at all. I can squat with the front of my feet on the ground. It's very tiring and it's easy to lose balance, so I need to hold the wall with both hands to stabilize my body. Also, my legs become numb and sore after squatting for a while, so I need to stand up and straighten my legs.
If I do the standard Asian squat with my heels touching the ground, my whole body will lean backward uncontrollably and I really can't squat.
Someone asked me how to go to the toilet when I was a kid? There was a toilet at home, but at school... I tried not to go to the toilet. If I really had no choice, I would stand on my feet and hold the wall with my hands. Going to the toilet was like being tortured. After I started working, the better office buildings in Beijing all had toilets. I have never encountered a place where all toilets were squat toilets.
When traveling, scenic spots usually prepare a toilet for the disabled. I don’t care that I am a disabled person, I always feel at ease when I use it.
My personal experience proves that Asians are not born with the ability to do the Asian squat. They can't do it without practice. Some people have said that it is because of my short Achilles tendon. No, I have the same proportions as an average person. However, my flexibility is not very good. For example, my left and right hands cannot be connected at the back, so when I take a shower... there is a part of my back that I can never wash without the help of tools.
Oh, by the way, this thing is not hereditary. I let my two sons try it, and they can squat, but they don’t follow me.
