Financial Services Association, September 28 (Reporter Shi Sitong) Another bank bond transfer is about to be redeemed.

Since this year, the Zhangjiagang Bank has also issued an indicative announcement on its convertible bonds that are about to expire after Jiang Yin Bonds, Wuxi Bonds, and Sunong Bonds have successively matured and been delisted. The Zhangjiagang Bank will then become the fourth bank to be delisted during the year.

It is worth noting that convertible bonds can only supplement core Tier 1 capital after share conversion. Currently, the latest conversion ratio of Zhang Xing's convertible bonds is only 24.21%. At the same time, the debt-to-equity conversion ratio of the remaining 13 banks currently in the market is also generally low. Of these, 11 have a debt-to-equity conversion ratio of less than 20%.

According to industry insiders, convertible bonds are redeemed at maturity when the share conversion ratio is low, which is not conducive to the bank's own capital structure planning, and will also increase the pressure on banks to repay debts on the maturity date. However, looking at it now, the current stock price of Zhangjiagang Bank's stock is slightly higher than the conversion price. At the same time, due to heightened sentiment in the A-share market, some bond-conversion holders may be willing to switch shares to a certain extent.

Zhang Xing's conversion bonds are about to expire. The latest share conversion ratio is only 24%

Specifically, on November 12, 2018, the Zhangjiagang Bank publicly issued “Zhang Xing Convertible Bonds” with a total face value of 2.5 billion yuan through the Shenzhen Stock Exchange, a convertible corporate bond with a total face value of 2.5 billion yuan. After the expiration of the term, trading of Zhang Xing Convertible Bonds will stop on November 8, 2024, and will be delisted on the Shenzhen Stock Exchange from November 13.

Now, the 6-year period is quietly approaching. The Zhangjiagang Bank issued an announcement reminding that November 7 is the last trading day for Zhang Xing's bonds. After the transaction is stopped and before the end of the share conversion period (that is, November 8 to 12), bond conversion holders can still convert Zhang Hang's bonds into the bank's A-share common shares according to the agreed conditions.

Meanwhile, within five trading days after the maturity of the convertible bonds, the Bank of Zhangjiagang will redeem all unconverted convertible bonds from investors at a price of 109% of the face value of the issued convertible bonds (that is, 109 yuan/sheet).

A Financial Services Association reporter noticed that most banks issue convertible bonds to supplement core Tier 1 capital, but convertible bonds can only supplement core Tier 1 capital after stock conversion. However, judging from the current share conversion situation, as of the close of trading on September 27, the latest share conversion ratio of Zhang Hang Bonds was only 24.21%.

In response, the industry generally believes that the convertible debt-to-equity ratio is low, or that it is impossible to effectively relieve the pressure on banks' core Tier 1 capital. According to Wang Yifeng, chief financial analyst at Everbright Securities, the maturity and redemption of convertible bonds when the share conversion ratio is low is not conducive to the bank's own capital structure planning, and it will also increase the pressure on banks to repay debts on the maturity date.

At the same time, Zheng Jiawei, chief analyst at Yongxing Securities Research Institute, also pointed out that direct redemption and payment at maturity not only contradicts the bank's purpose of supplementing core capital at the beginning of issuing convertible bonds, but also requires paying interest on debt conversion, increasing its debt costs, and has an impact on the bank's overall bias.

Therefore, he believes that next, the Zhangjiagang Bank may promote investors' enthusiasm for share conversion through announcements, investor relations activities, and even adjust share conversion prices, and increase the share conversion ratio as much as possible, thereby supplementing its core Tier 1 capital.

The positive stock price is higher than the conversion price, and the rise in A-share market sentiment may drive debt-for-equity swaps

“Investors will consider factors such as Zhangjiagang Bank's own business situation and stock price performance in the secondary market. Judging from the price, the current stock price of Zhangjiagang Bank's stock is slightly higher than the conversion price, which is quite attractive to bond conversion holders.” Cheng Ka-wai said.

In fact, judging from the original stock price, recently, the Zhangjiagang Bank experienced a rebound after a period of decline. The stock price has been flourishing for 7 consecutive trading days. The closing price on September 27 was 4.18 yuan/share. In contrast, the current share conversion price of Zhang Xing's bonds is 4.13 yuan/share.

However, as to whether to convert shares, Cheng Ka-wai suggested that investors can compare the benefits of debt-for-equity conversion and direct payment of bond-conversion, and comprehensively consider the related risks. If you choose to hold convertible bonds at maturity, you can get a fixed income through the 109% redemption price of the Zhangjiagang Bank, and if you convert shares, you may face the risk of fluctuating Zhangjiagang Bank's stock price in the future.

However, it is worth mentioning that compared to other bank debt conversions, Zhang Hang's debt-to-equity conversion ratio is already at a high level. Up to now, out of the 14 convertible bonds in the market, only 3 of Ziyin Convertible Bonds, Qingnong Convertible Bonds, and Zhang Xing Bonds have more than 20%, while the 5 debt-to-equity swaps, including Societe Generale Bonds and SPD Bonds, are less than 10%.

Judging from the share conversion premium rate, currently 7 out of 14 bank bonds have conversion premiums of over 20%. Among them, the premium rate for Qingnong debt-to-equity swaps was as high as 57.09%. Ziyin Convertible Bonds, Pudong Convertible Bonds, Shangyin Convertible Bonds, and Heavy Bank Convertible Bonds were 47.94%, 44.91%, 43.75%, and 41.08% respectively.

In response, an industry analyst told the Financial Federation reporter that in recent years, the equity market has fluctuated greatly, and the banking sector's valuation is low. Maintaining a high conversion premium rate reflects issuers' confidence in future stock price trends, but investors face higher transaction costs, etc. Investors need to comprehensively consider their own investment characteristics, risk tolerance, and market trends to make decisions.

At the same time, according to Cheng Ka-wai, the current valuation level of bank debt conversion is low. In the future, as bank interest spreads and profit levels increase, the stock price trend is relatively good, and bank debt conversion will also usher in better opportunities. “Sentiment in the A-share market has increased dramatically recently. If holders are optimistic about the future prospects of bank stocks, converting bonds to shares also has some investment value.” he said.