Shanghai Bourse Issues Draft Rules on ‘Targeted’ Convertible Bonds

Targeted convertible bonds can be used to support mergers, acquisitions, reorganisation, restructuring, or refinancing of listed companies.

The SSE (Shanghai Stock Exchange) is soliciting consultative feedback on new rules for the issuance of ‘targeted’ convertible bonds by listed companies.

Targeted convertible bonds are meant to be used as payment methods to support mergers and acquisitions, reorganisation, restructuring, or refinancing to improve the quality of listed companies.

Under a pilot programme, the SSE has registered targeted convertible bond issuances by six listed companies since December 2019, raising CNY 2 billion for restructuring purposes and CNY 5 billion for auxiliary fundraising.

The new rules are aimed at clarifying the standards for the listing, transfer, conversion to shares, sell-back and information disclosure for targeted convertible bonds, to make them a “standardised securities product that is well received in the market with transparent rules and high liquidity”.

“With the business rules further defined, the development of the targeted convertible bonds as a payment tool and financing instrument for listed companies’ M&A and reorganisation will accelerate,” said an SSE official.

Under the rules, different pricing terms can be used in the issuance of targeted convertible bonds in the same approval document, in cases where the issuance is intended to meet two separate objectives (e.g. M&A and fundraising).

Targeted convertible bonds will only be open to professional investors; the directors, supervisors and senior managers of listed companies; and shareholders with more than a 5% stake in the listed entity – subject to a total limit of 200 investors.

To convert the targeted convertible bonds into shares, listed companies may issue new shares or use shares repurchased from the market.

Targeted convertible bonds will also be allowed by companies listed on the SSE STAR Market.

The consultation, available here, is open for comment until 15 July.

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