On the evening of May 15, Zijin Bank (601860.SH) announced that as of May 15, 2024, the bank's stock had closed at less than 80% of the current share conversion price for 15 out of 30 consecutive trading days, and the “Ziyin Bonds” conversion price had triggered downward revisions.

However, after review and approval, the board of directors of the company decided not to revise the “Ziyin Convertible Bonds” conversion price downward this time, and will not propose a downward correction plan if the “Ziyin Bonds” conversion price downward revision clause is triggered again within the next six months. The calculation will start again on November 16, 2024, and if it triggers the “Purple Silver Convertible Bonds” conversion price again, the downward revision clause will be discussed at that time.

The right to revise has not been exercised twice in a row

In fact, on October 20 of last year, the board of directors of Zijin Bank announced that it would not revise the “Ziyin Convertible Bonds” conversion price downward. At the time, the “Ziyin Convertible Bonds” conversion price was 3.85 yuan/share, which is in line with the current price.

At the same time, the bank also stated that starting from April 21, 2024, the company's board of directors will once again hold a meeting to decide whether to exercise the right to revise the “Ziyin Bonds” conversion price downward.

With the implementation of this announcement, it also means that Zijin Bank has not exercised its right to make downward revisions twice in a row.

According to information, “Ziyin Convertible Bonds” was issued on July 23, 2020, with a total issuance of 4.5 billion yuan. The bond period is 6 years, and the initial conversion price is 4.75 yuan/share.

Blue Whale News noticed that the “Purple Silver Convertible Bonds” share conversion price has been adjusted four times since it was issued.

On June 15, 2021, the annual profit distribution was adjusted to 4.65 yuan/share; on August 10, 2021, it was adjusted to 4.05 yuan/share to meet the conditions for the downward revision of the share conversion price; on June 13, 2022, the annual profit distribution was adjusted to 3.95 yuan/share; on June 16, 2023, it was adjusted to 3.85 yuan/share again due to the annual profit distribution.

What is the reason behind not repairing it?

As for the reason for not revising downward, the company stated that since “Ziyin Convertible Bonds” is still far from the expiration of its term, it comprehensively considers multiple factors such as the company's basic situation, stock price trends, market environment, etc., as well as confidence in the company's long-term steady development and intrinsic value, in order to protect the interests of all investors.

Generally speaking, the reason for triggering the downgrade clause is usually a continuous drop in stock prices, leading to an increase in the bond conversion premium rate and a drop in the conversion price.

However, the purpose of banks issuing convertible bonds is to supplement core capital, and this supplement can only be achieved after converting convertible bonds into shares. After the share conversion price is lowered, the conversion value of convertible bonds will increase, which is beneficial to boosting bondholders' willingness to convert shares. At the same time, the smooth conversion of convertible bonds can also help banks supplement their core Tier 1 capital, which can be described as two benefits in one stroke.

So why did Zijin Bank choose not to fix it?

Industry insiders said that the convertible debt-for-share price issued by banks must not be lower than the latest audited net assets per share, and the regulation also applies to the downsizing of the conversion price. The share conversion price of some of the underlying shares is already far below the net assets per share, and bank debt conversion is greatly restricted through downgraded and assisted redemption channels.

As of the end of 2023, Zijin Bank's net assets were 4.96 yuan. On May 15, Zijin Bank's closing price was 2.69 yuan, nearly double the difference. Therefore, there is currently no room for a reduction in the conversion price of Ziyin bonds.

Judging from the disclosed data, the conversion ratio of “Ziyin Convertible Bonds” is very low.

In the first quarter of this year, a total of 2,000 yuan of “Ziyin Convertible Bonds” were converted to company shares, and the number of shares transferred was 518. As of March 31, 2024, a total of about 400,000 yuan of “Ziyin Convertible Bonds” had been converted into company shares. The cumulative number of shares transferred was about 91,100 shares, accounting for 0.0025% of the total number of shares issued by the company before convertible bonds were converted to shares. As of March 31, 2024, the amount of convertible bonds that have not been converted into shares was approximately 4.5 billion yuan, accounting for about 99.99% of the total amount of “Ziyin Convertible Bonds” issued.

The equity market has not performed well in the past two years. The conversion value of bank bonds has not risen to the point of triggering redemption clauses for most of the time, and almost no bank bonds have been delisted.

In addition to Zijin Bank, several existing bank debt-conversion rates are still sluggish. Sunong's debt-to-share conversion rate is still low. Sunong's debt-to-share conversion ratio is about 50%, and Zhang Hang's debt-to-share conversion ratio is still less than 1%.