Legally speaking, private placement involves six relationships, namely, equity relationship, creditor's rights relationship, trust relationship, capital relationship, entrustment relationship and partnership relationship. Convertible bonds mainly involve the relationship between equity and creditor's rights. Based on these two relationships, the same legal space can also be extended to the conversion of shares into bonds.
At present, China's financial laws do not allow direct loans between enterprises, and loans between enterprises must be authorized by a third party. In order to obtain legal recognition, private convertible bonds must first solve the legal status of direct lending between companies, because the latter directly defines the legality of issuing bonds to enterprises. "
At present, there are clear legal provisions on the bonds and equity of private convertible bonds. In terms of bonds, the Corporate Bonds Ordinance, the Contract Law and the Trust Law all have provisions, and in terms of equity, the Company Law also has relevant provisions. However, the conversion between equity and bonds is not clearly defined by law. According to international practice, what is prohibited by law but not clearly stipulated is allowed, and vice versa. Therefore, in principle, there is no legal obstacle to the non-public issuance of convertible bonds by SMEs. The blank of the existing law is that there is no clear guidance for non-public bonds, but this does not constitute an obstacle to private innovation.
According to China's current laws, there is no legislation specifically for convertible bonds of unlisted companies. At present, corporate bonds are mainly regulated by the Company Law, the Securities Law and the Measures for the Administration of Securities Issuance of Listed Companies of the CSRC.
In particular, Articles 162 and 163 of Chapter VII of the Company Law stipulate the specific requirements and implementation methods for listed companies to issue convertible bonds. Article 155 stipulates the "examination and approval" of issuing bonds, and the examination and approval of issuing bonds is a necessary procedure for public offering. This article can be interpreted as not applicable to non-public issuance of bonds. Articles 156 to 16 1 of the Company Law stipulate some miscellaneous matters concerning the issuance of bonds by companies, which can be used for non-public issuance of bonds without conflict.
For the future prospect of private convertible bonds, experts believe that private convertible bonds are like a bridge between equity and creditor's rights. If we can get the guidance and support of relevant policies, then the advantages will definitely outweigh the disadvantages. However, the whole legislative process should conform to the overall pace of national financial development.