For the listed company itself, private placement is helpful to enhance the company's strength and do more projects, and the market will generally interpret it as a good thing. However, the rise and fall of stock prices are the result of a variety of factors, and investors should analyze and make judgments based on multiple factors.
Private issuance is a type of additional issuance. Issue investment products such as bonds or stocks to a limited number of sophisticated institutional (or individual) investors. Sometimes also called "targeted fundraising" or "private placement." The issuance price is determined by the bidding of investors participating in the additional issuance. The issuance procedure is more flexible than the public issuance. It is generally believed that this financing method is more suitable for enterprises with small financing scale and high degree of information asymmetry.
After the formal implementation of the new Securities Law and the shareholding reform in China, listed companies have increasingly adopted this equity financing method. Relevant regulations of the China Securities Regulatory Commission include: the issuance target shall not exceed 35 people, the issuance price shall not be lower than 80% of the market price, the issued shares shall not be transferred within 6 months (18 months if subscribed by the major shareholder), and the purpose of fundraising must comply with the national Industrial policies, listed companies and their executives must not commit violations, etc.
Fixed-increase hedging refers to the use of stock index futures portfolio positions to track and close stock-side risk exposures in real time, in order to maintain or even increase value.
As one of the important ways of equity refinancing, one of the characteristics of private placement that has attracted widespread attention from the outside world is that the price of the additional issuance often has a higher discount compared to the market price at the time of the additional issuance. The average discount rate for private placements conducted in cash since 2008 is 20.65%. However, according to our calculations, the 20.65% discount rate after the lifting of the ban only achieved an average return of 11.1%. The important reason is that the Shanghai Composite Index has dropped from more than 5,000 since 2008. Points fell below 3,000 points, and systemic risks eroded most of the profit margins from participating in private placements.
Hedging of private placements of individual stocks: We calculated 247 private placements of cash to institutional investors since 2008. The strategy after using equal hedging is better than the strategy without hedging, which is mainly reflected in the average return rising from 11.1% to 16.7%, and the proportion of profitable companies rising from 44.32% to 54.55%.
On the other hand, the standard deviation of the overall return dropped from 0.354 to 0.342, making the return more stable. However, the method of using stock index futures to hedge private placement of a single stock is not perfect. There are shortcomings such as low correlation between a single stock and stock index futures and unstable beta.
Hedging during the private placement of multiple stocks: We designed a case of using 200 million funds to participate in the private placement on a rolling basis, using four strategies: equal value hedging, beta hedging, timing hedging, and no hedging. Strategy. The final results show that timing hedging achieved the best returns, followed by no hedging strategy, equal value hedging and beta hedging were the worst; but on the other hand, the risks of equal value hedging and beta hedging were lower than the former two.