The reason for the sharp fall of Zhongfa is that the issuance of convertible bonds will suppress the stock price.
1. Prompt creditors of convertible bonds to convert shares. If a listed company wants to allow most investors holding convertible bonds to convert shares, it must ensure that the conversion price is lower than the positive stock price, but the conversion price is set based on the positive stock price.
Therefore, the stock price will be suppressed before the issuance of convertible bonds, thereby reducing the conversion price.
If the conversion price of convertible bonds is higher than the positive stock price, then not many investors holding convertible bonds will convert shares, and the company will have to pay a large amount of principal and interest to redeem the bonds after maturity.
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The conversion of convertible bonds into shares is a good thing for the company, because it can not only raise a large amount of funds for the issuing company, but also may not have to pay the interest and principal of the bonds.
However, the conversion of convertible bonds will harm the interests of collective shareholders, because once the shares are converted, the number of shares on the market will increase, and the earnings per share of the original shareholders will naturally be diluted.
2. Institutions and major shareholders can profit from it. Many friends may be a little confused. What benefits does the stock price fall to institutions and major shareholders? In fact, lowering the stock price before issuing convertible bonds can allow institutions and major shareholders to make profits.
With the listing of convertible bonds, the company will release good news, thereby pushing up the price of the underlying stock, and the price of convertible bonds will also rise accordingly.
Major shareholders and institutions that own a large amount of the company's shares have the right to allocate convertible bonds, so that institutions and major shareholders can obtain higher expected returns from convertible bonds.