Economic Observer Network reporter Wan Min
Everbright Bank Convertible debt to equity financing ushered in the "white knight" - China Huarong at the last moment.
The full name of China Huarong Asset Management Co., Ltd. is China Huarong Asset Management Co., Ltd., which is one of the four state-owned financial asset management companies.
On March 8 and 9, China Huarong successively bought Everbright Bank convertible bonds in the secondary market. On March 13, China Huarong released a voluntary announcement on the Stock Exchange, saying that the board of directors of the company had made a resolution to agree to implement the share conversion of Everbright convertible bonds held by the company as of March 13, 2023.
On the evening of March 13, 2023, Everbright Bank announced that it had held a board meeting a few days ago to review and approve the Proposal on China Huarong Asset Management Co., Ltd.'s Proposed to Become the Major Shareholder of China Everbright Bank Co., Ltd., and the voting result was unanimous. The announcement showed that the Board of Directors agreed that the Bank should apply to the CBRC for approval of the qualification of China Huarong as a major shareholder.
March 13 is also the last trading day of Everbright convertible bonds (convertible code: 113011. SH). Six years ago, in March, Everbright Bank issued 30 billion yuan of convertible bonds (hereinafter referred to as "Everbright Convertible Bonds"). As of December 31, 2022, the face value of Everbright Convertible Bonds remains 24.198 billion yuan. Based on the high premium of the conversion price, the market once thought that the hope of Everbright debt to equity conversion financing was slim.
China Huarong
"There is almost no hope of equity conversion." This is the view of many market analysts on Everbright debt conversion at the end of February this year. Only a dozen days before the last trading day, Everbright Bank has maintained a premium rate of more than 10% between the regular share price and the conversion price. It is difficult to promote the conversion and make the conversion value exceed the redemption price by 105 yuan.
For Everbright convertible bonds issued in March 2017, the coupon rates of the first to sixth years are 0.2%, 0.5%, 1.0%, 1.5%, 1.8% and 2.0% respectively. The convertible bond will be delisted at maturity in six years. According to the suggestive announcement on the due redemption and delisting of "Everbright Convertible Bonds" issued by Everbright Bank, the principal and interest redemption amount of Everbright Convertible Bonds is 105 yuan/piece (tax included), the final trading date is March 13, 2023, the final conversion date is March 16, 2023, and the delisting date is March 17, 2023.
In recent trading days, the closing price of Everbright convertible bonds has always fluctuated around 104.9. For investors who choose to hold to maturity, after tax deduction, although the income is small, it at least looks positive.
The option of debt to equity swap is another calculation method. According to the Prospectus of Everbright Convertible Bonds, the holders of Everbright Convertible Bonds can convert shares at a price of 3.35 per share during the conversion period. On March 13, the closing price of Everbright Bank's A-share was 3.06 yuan. If the conversion price is 3.35 yuan, the conversion premium rate is 14.85%. If the shares are converted at this price, investors will face floating losses. As of March 10, only 19.34% of Everbright convertible bond investors chose to convert shares.
This means that if investors choose to redeem at maturity instead of converting shares, Everbright Bank will need to repay 25.3 billion yuan in cash.
The turnaround came when China Huarong began to "buy buy". On the evening of March 10, Everbright Bank announced that as of March 8, 2023, China Huarong held 78818800 Everbright convertible bonds, accounting for 26.27% of the total issuance of Everbright convertible bonds. On March 9, China Huarong increased its holdings of 42868060 Everbright convertible bonds, accounting for 14.29% of the total issuance of Everbright convertible bonds. As of March 9, China Huarong had held 121686860 Everbright convertible bonds, accounting for 40.56% of the total issued Everbright convertible bonds.
On March 13, the closing price of Everbright Bank was 3.06 yuan, which was close to 9% from 3.35 yuan. At this time, there was almost no arbitrage space for China Huarong to significantly increase its holdings of Everbright convertible bonds. China Huarong did not disclose the cost of this transaction. For example, based on a rough estimate of 104.9 yuan per Everbright convertible bond, the cost this time exceeded 12.765 billion yuan.
On the evening of March 13, China Huarong released a voluntary announcement on the Stock Exchange, saying that the board of directors of the company had made a resolution to agree to apply for the equity conversion of Everbright bonds held by the company as of March 13, 2023. The company will also report to the regulatory authorities for approval according to procedures. This also means that Everbright's debt to equity swap ushered in a "desperate recovery" at the last moment.
gf securities According to the research paper, Everbright may realize a new model of bank equity swap. For China Huarong, direct purchase of the same shares from the secondary market will cause price fluctuations, and the actual cost per share may exceed 3.35 yuan, so it is relatively cost-effective to convert shares at a premium. As a strategic investor, China Huarong should have greater confidence in the future development of Everbright Bank. In recent years, Everbright Bank's annual dividend ratio has been at least 25% and at most 30%. Future growth and high dividends will also make up for this premium loss.
Guangfa Securities Research News believes that for Everbright Bank, if the conversion of bonds finally realizes a large-scale conversion of shares (19.34%+China Huarong 40.56%+Everbright Group 9.70%), it will not only directly reduce the pressure of repayment when due, but also supplement core tier one capital while introducing strategic investors, forming a strong support for future business development. According to the static calculation of the data at the end of September 22, after Everbright Group and China Huarong converted shares, the core tier one capital adequacy ratio of Everbright Bank will increase by at least 0.10 percentage points to 8.79%, about 1.04 percentage points higher than the regulatory requirements.
As of September 2022, the core tier one capital adequacy ratio of Everbright Bank is 8.69%, the tier one capital adequacy ratio is 11.01%, and the capital adequacy ratio is 12.97%, down 22, 40, and 40 percentage points respectively from the end of 2021.
According to the official website of China Huarong, the company was founded on November 1, 1999. It is one of the four state-owned financial asset management companies established to deal with the Asian financial crisis, defuse financial risks, and promote the reform of state-owned banks and the extrication of state-owned enterprises. On September 28, 2012, with the approval of the State Council, the Company was restructured as a joint stock limited company. On October 30, 2015, China Huarong was listed on the main board of the Hong Kong Stock Exchange.
In recent years, China Huarong has suffered losses. The annual report for 2020 shows that China Huarong's net loss is expected to be 102.903 billion yuan. Faced with such huge losses, China Huarong announced the introduction of CITIC Group Co., Ltd., China Insurance Investment Co., Ltd China Life Five strategic investors, including Asset Management Co., Ltd., China Cinda Asset Management Co., Ltd., and Sino Ocean Capital Holdings Co., Ltd.
On March 7, China Huarong announced that the Ministry of Finance planned to increase 2.407 billion domestic shares (3% of the total issued share capital of the company) held by it to CITIC Group. The Ministry of Finance and CITIC Group have completed the relevant transfer registration procedures. After the equity change, the Ministry of Finance held 24.76% of the company's shares, and CITIC Group held 26.46%, becoming the largest shareholder of the company; The company is still a state-owned financial institution, which will not lead to changes in the actual control of the company.
In the middle of 2022, China Huarong announced that the net loss attributable to the shareholders of the company in the first half of the year was expected to be about 18.878 billion yuan.
The proportion of bank debt to equity swap is not high
In fact, due to the downturn in the stock price of bank shares, the proportion of bank convertible bonds has been limited.
Statistics show that by the end of February 2023, there will be 19 convertible bonds of listed banks in the market, including 4 convertible bonds of joint-stock banks, 8 convertible bonds of urban commercial banks, and 7 convertible bonds of agricultural commercial banks, with a balance of 292.055 billion yuan, accounting for 34% of the market balance of convertible bonds.
The results of convertible bonds to shares disclosed by listed banks by the end of 2022 show that, Sunong Bank Issued Sunong convertible bond The cumulative share conversion amount accounted for 48.46% of the total bonds issued, Bank of Chengdu Issued Convertible bonds of Chengdu Bank The cumulative amount of convertible bonds accounted for 21.45% of the total bonds issued. The convertible bonds of other listed banks accounted for less than 20%, and the convertible bonds of 12 listed banks accounted for less than 0.1%.
"The expectation of the bank's own share price will affect whether investors choose to convert shares or not. With expectations for the bank's management and market valuation, investors will more choose to convert shares and hold them for a long time to obtain investment returns." A bank analyst told reporters.
For banks, the convertible bonds issued by banks can supplement core tier one capital after conversion. Compared with the two methods of additional issuance and rights issue, they will not have a significant negative impact on stock prices. In addition, the bank convertible bonds are issued in a large scale. Once the conversion is successful, the adequacy level of core capital can be significantly improved. According to the Capital Management Measures of Commercial Banks (for Trial Implementation) implemented since 2013, the core tier one capital adequacy ratio of commercial banks should not be less than 5%. With 2.5% reserve capital requirement and 0.25% - 1% additional capital requirement for systemically important banks, commercial banks should meet the core tier one capital adequacy ratio requirement of 8.5%.
Therefore, there are still new banks issuing convertible bonds this year. On January 19, Concord Bank The announcement said that the CSRC accepted the bank's application for public issuance of A-share convertible corporate bonds. last year, Bank of Chongqing And Bank of Chengdu issued 13 billion yuan and 8 billion yuan of convertible bonds respectively. and Xiamen Bank 、 Changsha Bank Ruifeng Bank Minsheng Bank The plan to issue convertible bonds has been approved by the General Meeting of Shareholders, Changshu Bank The plan to issue convertible bonds has been approved by the CSRC.
A recent research report of Minsheng Securities pointed out that as of February 24, 2023, there were a total of 8 delisted bank convertible bonds, of which, except for the earlier Minsheng convertible bonds and the final maturity redemption of CMB convertible bonds, the remaining 6 were redeemed in advance due to triggering the early redemption clause. "From the point of time of forced redemption of convertible bonds of all banks, it is mainly concentrated in 2015 and 2019; these two periods are in the historical credit cycle, with the characteristics of economic pressure, policy driven liquidity and credit environment improvement. The banking sector has achieved relative income opportunities in the middle of the cycle, policy driven expected improvement and economic stability in the late cycle."
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