This year, the epidemic has had a great impact on the business expectations of enterprises. with the loose monetary environment of global water release, many hot-headed companies have launched refinancing plans to replenish funds through a loose financing window to prepare for counter-trend expansion. Ningde era and Wuxi Apptec of A-shares, Zhongjiao Holdings of Hong Kong stocks, Kingdee International Software Group, NIO Inc. and Futu Holdings Limited of US stocks, and so on, have all launched refinancing one after another.

Then the problem arises. In the current era of general cross-market investment, we encounter terms related to equity financing of listed companies, such as stock delivery, rights issue, rights issue, fixed increase, transfer of shares, and so on. Many investors are unable to accurately distinguish and understand the real meaning behind it.

In particular, equity refinancing of listed Chinese companies involves professional English vocabulary gaps, such as investors will encounter seasoned equity offering (SEO), Secondary Offering,RIght issue and bonus, Public offerings, private placement and so on.

Based on this, in order to help investors better understand equity refinancing of listed companies, this paper will discuss in depth various specific ways of equity refinancing in different markets, and take NIO Inc. (NIO), which has recently completed a fixed increase, as an example to focus on interpreting the phenomenon of fixed increase of US-listed stocks.

I. Equity refinancing of listed companies

When discussing the equity refinancing methods of listed companies, it depends on the specific market. In A shares, Hong Kong stocks, and American stocks, there are different ways of equity refinancing.

For A-share listed companies, their refinancing behavior after listing can be divided into four categories: (1) allotment of shares; (2) bonus shares, referred to as "shares"; (3) increased share capital, referred to as "conversion"; and (4) additional shares, referred to as additional issues.

Among them, (1) rights issue means that a listed company issues new shares in proportion to its existing shareholders. For existing shareholders, they can choose to subscribe or not to subscribe. If they do not subscribe, then the shares of existing shareholders will be diluted, that is, after the rights issue, the proportion of the original shareholders who do not participate in the rights issue will decrease. The rights issue is a means of re-financing by issuing new shares, and shareholders have to pay the rights issue according to the rights issue price and the number of rights issue, which is completely different from the dividend paid by the company to shareholders.

For example, the Bank of Jiangsu issued a rights issue plan on July 10 this year, placing no more than 3 shares for every 10 shares to all A-share shareholders. For simplicity, it is assumed that the total share capital of Jiangsu Bank before the rights issue is 1 billion shares, and after the rights issue, the total share capital will be 1.3 billion shares. If investor A holds 100 million shares of Jiangsu Bank before the rights issue, the corresponding shareholding ratio is 10%; but investor A does not participate in this rights issue, then after the rights issue, its shareholding ratio will become 1.13% 7.69%. Compared with the 10% before the rights issue, it has dropped by 2.31%, which is the meaning of dilution, or in popular terms, the proportion of the cake has declined.

(2) bonus shares means that a listed company keeps this year's after-tax profits in the company and pays shares as dividends, thus converting the profits into equity. After giving bonus shares, the total amount and structure of the company's assets, liabilities and shareholders' equity have not changed, but the total share capital has increased, at the same time, the net assets per share has decreased, and the stock price will decrease accordingly. This approach is more popular with A-share investors, because although its shareholding ratio remains unchanged, the number of its holdings will increase, and investors will feel that it is in a better position when the stock price is expected to recover gradually.

(3) the conversion of increased share capital, or equity conversion for short, means that the company converts the capital reserve into equity. The increase of equity does not change the rights and interests of shareholders, but increases the scale of equity, so the objective result is similar to that of bonus shares. The essential difference between increased share capital and bonus shares is that bonus shares come from the company's annual after-tax profits and can be given to shareholders only if the company has a surplus. On the other hand, the increase in equity comes from the capital reserve, which is not limited by the amount and time of the company's distributable profits this year, as long as the company's book capital reserve is reduced and the corresponding registered capital is increased. therefore, in a strict sense, increasing equity is not a dividend return to shareholders.

In short, although the two ways of giving shares and transferring shares will objectively increase the number of shares held by investors, the meaning behind them is completely different. Giving shares is essentially a stock dividend, which requires listed companies to generate net profits in order to achieve, because the increased share capital comes from after-tax net profits.

In contrast, the conversion is very easy to achieve, does not require whether the listed company is profitable, as long as it has sufficient capital reserves, it can be considered to implement the conversion, because the increased equity comes from the capital reserve.

Therefore, if a listed company chooses to give shares rather than transfer shares, it generally means that the profit situation of the listed company is relatively good and there is enough net profit to be distributed. And if a company chooses to transfer shares instead of giving shares, it generally means that it is "swollen and pretending to be fat", the profit situation is relatively average or poor, and the net profit is not enough to give shares.

(4) the issuance of new shares means that a listed company issues new shares to the public or a specific object, if it is issued to the public as a whole, then it is a public offering; if it is issued to a specific investor, it belongs to a non-public offering, also known as directional additional issuance, referred to as fixed increment. At present, A-share listed companies generally adopt this way of fixed increase.

There are many reasons for listed companies to choose fixed increase, including the introduction of strategic investors, project financing, equity incentives, acquisition of assets, supplementary funds, expansion of equity and so on. Next, in the second part of the in-depth analysis of the fixed increase.

Compared with A-share listed companies, the equity refinancing methods of Hong Kong and American listed companies are quite different.

First of all, let's take a look at Hong Kong stocks. First of all, the rights issue and rights issue of Hong Kong stocks and the rights issue of A shares are often misused. Specifically, the rights issue of Hong Kong shares refers to the targeted placement of Hong Kong shares to certain institutions, which is essentially a fixed increase in A shares. On the other hand, the rights issue of Hong Kong shares is a common means of issuing new shares to all shareholders on a pro rata basis. See the following formula for details:

(1) the private placement of A shares = the allotment of Hong Kong shares to certain institutions.

(2) the rights issue of A shares = the rights issue of Hong Kong shares to all shares.

In addition, the rights issue of Hong Kong shares can be further divided into allocation of the old and allocation of the new. The so-called allotment of old means that the major shareholders of the company use their old shares to issue shares. For the company and other shareholders, there is no other impact except changes in share prices. In essence, it is the transfer of a large number of shares. The distribution of new shares refers to the issuance of new shares by the company, which is also the most common way of rights issue. However, due to the issuance of new shares, and new shares will not be subscribed to existing shareholders, so there will be dilution effect after the rights issue.

As for the so-called rights issue of Hong Kong stocks, it is the favorite of many old shares. How to operate it exactly? Major shareholders continue to sell shares, smash down the stock price, and then issue shares at a low price, and then sell the cash to participate in the rights issue, so as to get back more shares, and the shares of many minority shareholders who do not participate in the rights issue are diluted. The major shareholders then sell the stock, then the share price falls again, and then the rights issue. If the stock price is too low, there will be a partnership, and repeated operations can make investors lose a lot of money. Therefore, it is necessary for investors to maintain sufficient vigilance against the rights issue of Hong Kong listed companies, especially those listed on the gem and companies with a share price of less than HK $1 per share.

Compared with the A-share market and the Hong Kong stock market, the equity refinancing method of the US stock market is different.

First of all, unlike A-share listed companies like to give shares and convert shares, American listed companies generally distribute cash dividends to shareholders in return. Secondly, the equity refinancing of American listed companies, the corresponding professional term is SEO, that is, seasoned equity offering, not secondary offering, the two are easy to be mixed. SEO refers to post-listing refinancing, which specifically includes (1) primary market issuance, namely primary offering and (2) secondary market issuance, namely secondary offering.

Among them, (1) primary offering refers to the issuance of new shares by the company, after the completion of the additional issuance, the shareholding proportion of existing shareholders will decrease, that is, it will cause equity dilution effect for existing shareholders, so it is also known as Dilutive Offerings. In addition, primary offering can also be divided into (I) the general public, public offering; and (ii) specific investors, private placement. (2) secondary offering refers to the transfer of old shares by existing shareholders, which is essentially similar to the "allocation of old shares" in the Hong Kong stock market, which does not involve the issuance of new shares and will not dilute the shares of existing shareholders, so it is also called Non-Dilutive Offerings (non-diluted issue).

To sum up, when it comes to the way of refinancing, it is necessary for investors to clarify which market the listed company is based on.

Next, take the Chinese stock NIO Inc. (NIO) as an example to deeply interpret the additional issuance behavior of the Chinese stock.

Second, how to treat the fixed increase behavior of listed companies with Chinese listed stocks?

1. Relevant regulations on refinancing in the three markets

Before interpreting the fixed increase behavior of listed companies of Chinese listed stocks, it is necessary for investors to understand the new refinancing rules of the three markets (A shares, Hong Kong stocks and US stocks). We can better understand the requirements of the market regulators of the three places on the fixed increase behavior of listed companies.

Generally speaking, the refinancing of A-share market implements the method of "first instance", while Hong Kong stocks and US stocks implement the principle of "one authorization, multiple fundraising".

Specifically, every time A-share listed companies expect equity refinancing, they need to be approved by the CSRC before it can be implemented. Before the CSRC issued the new refinancing rules in February this year, the refinancing conditions of A-share listed companies were very high because they mainly referred to the conditions of A-share initial public offerings. However, after the implementation of the New rules on refinancing, China's Securities Regulatory Commission has comprehensively relaxed the restrictions on the refinancing of A-share listed companies. For example, reducing the refinancing conditions of gem, adjusting the number of non-public offerings, relaxing the pricing mechanism of non-public offerings, shortening the lock-up period of non-public offerings, liberalizing the restrictions on the reduction of non-public offerings, prolonging the validity period of approvals, and making the pricing base date more flexible, relax the restrictions on the financing scale of non-public offerings, restrict the behavior of "stock and real debt" and so on.

In the US stock market and Hong Kong stock market, the US stock market and Hong Kong stock market rely on the securities registration and issuance system, and enterprises can adopt the securities reissue system of "one authorization, multiple offerings". Take the placement and refinancing of Hong Kong stocks as an example, the placement in the Hong Kong stock market is similar to the private placement of A shares, which is to issue new shares and raise funds to designated institutions or investors. However, unlike the A-share private placement, when a Hong Kong listed company has obtained a general authorization, as long as the proportion of the additional issuance does not exceed 20% of the share capital on the day of approval, and the discount on the issue price does not exceed 20%, any number of rights issues can be carried out in that year.

In terms of refinancing conditions, the regulatory authorities of Hong Kong stocks and US stocks follow the market-oriented principle for post-listing refinancing, and there is no strict supervision and approval system. The difference is that US stock refinancing needs to be registered and approved with SEC, but regulators are mainly concerned with the disclosure of refinancing activities, and the review process is relatively rapid and can be completed within two weeks. As for Hong Kong stocks, apart from the fact that the additional issuance of more than 20% of the total share capital requires the approval of the shareholders' general meeting, no other conditions are required, so under ideal circumstances, the placement can be completed within one day.

It is worth mentioning that the fixed growth market in the United States is not without problems. What is controversial is the combination of "directional discount + short selling" to form arbitrage. Specifically, investors who subscribe to subscriptions (usually hedge funds) short stocks before the information is made public, and when the shares are registered and circulated, they use the subscribed shares to level out their short positions. In the United States, a fixed addition product called the "death spiral" has also been popular. Listed companies issue non-public securities with adjustable stock prices, which can be converted at a lower price in the event of a fall in the share price, so that the unsubscribed shares of the original shareholders are diluted, causing the share price to fall further.

In recent years, this model has converged in the United States with the strengthening of regulatory enforcement and the improvement of the liquidity of additional shares (so that issuers have greater bargaining power).

To sum up, compared with the strict refinancing regulations of A shares, the regulators of Hong Kong stocks basically adopt "governance by doing nothing", there is no strict supervision and examination and approval system, and basically rely on the listed companies themselves. Although US stock refinancing needs to be registered and approved in SEC, regulators are mainly concerned with the disclosure of refinancing activities, which are generally reviewed and approved quickly. In addition, in terms of the pricing mechanism, there are basically no restrictions on US stocks and Hong Kong stocks, and US stocks are only required to be approved by a general meeting of shareholders only when a large proportion of the fixed price increase (more than 20%) is issued at a discount.

2. The fixed increment process of NIO Inc. (NIO), a Chinese stock.

On June 9, NIO Inc. issued a prospectus for the financing of new shares, announcing the start of the issue of 60 million American depositary shares (ADS) at a proposed price of $5.97 per ADS. NIO Inc. also said he plans to grant the underwriter 30 days of additional placement rights to buy up to 9 million additional American depositary shares. Morgan Stanley, Credit Suisse and CICC are the co-underwriters of the ADS offering.

By June 11, NIO Inc. issued a supplementary version of the prospectus, which revised and supplemented the prospectus on June 9. one of the important points is that NIO Inc. allows underwriters to buy up to 12 million additional American depositary shares.

By June 15, NIO Inc. announced that he had completed the issuance of 72 million American depositary shares (ADS). Thus it can be seen that the process of additional issuance of listed companies in the United States is relatively fast, and if the value of listed companies can be recognized by investors, then the additional issuance of shares can be completed quickly.

After NIO Inc. completed the fixed increase, the market also gave positive feedback. NIO Inc. 's share price has risen by 132% since June 15, which is related to the purpose of NIO Inc. 's fixed increase. In his prospectus for additional financing, NIO Inc. said that the main uses of this additional offering are research and development (30 per cent), plant expansion (15 per cent) and daily operation and marketing and service network (40 per cent). Therefore, under the core logic that the capital market recognizes that NIO Inc. will improve profitability after increasing production, the sharp rise in NIO Inc. 's share price is understandable.

Third, we can not simply draw a conclusion on the refinancing behavior.

Whether in A shares, Hong Kong stocks, or US stocks, listed companies' own refinancing behavior, especially rights issues, is difficult to simply say good or bad, financing is neutral, after all, the company is listed in order to obtain more flexible financing channels, business development is inseparable from the support of capital, especially Internet companies, the opportunity is fleeting.

On the other hand, the company has financing needs and the capital side is willing to support it. The main provider of additional funds is the institution. Whether the issue is smooth or not and the discount and premium of pricing all reflect the attitude of the organization towards the company. To some extent, the low discount rate and fast issuance speed also means that the organization recognizes the company. As mentioned at the beginning of the article, the initial public offerings of Hong Kong stocks such as Zhongjiao Holdings, Kingdee International Software Group, NIO Inc. and Futu Holdings Limited of US stocks are all very smooth, which shows the attitude of the market.

Generally speaking, it is necessary for investors to make an in-depth analysis combined with the texture of the company and the use of refinancing funds. the judgment of the following three issues can be given: (1) the purpose of refinancing; (2) the necessity of refinancing; and (3) the impact of refinancing on the follow-up profitability of listed companies. Only on the basis of an in-depth understanding of the above issues, investors will not be arbitrarily affected by short-term sentiment.