“Jiangyin Bank’s Largest Shareholder Switches Hands”
On January 15, Jiangyin Bank announced that Jiangnan Water has become the largest shareholder of the bank after holding 141 million shares through a “debt-for-equity swap.” This move accounts for 6.13% of the company’s total share capital. Analysts believe that this highlights the reappearance of the “Everbright Model,” as Jiangnan Water, through the increase in its holdings of Jiangyin convertible bonds, has become the bank’s largest shareholder.
The funds involved in the purchase of the “Jiangyin Convertible Bonds” and the implementation of the stock conversion are from Jiangnan Water’s own funds. The company plans to use no more than 600 million yuan for the purchase of these convertible bonds and to convert shares to become a shareholder of Jiangyin Bank – a goal that has been achieved with the recent transaction.
In addition to the increase in holdings by Jiangnan Water, Jiangyin Bank also announced that some of its senior executives and key personnel plan to increase their holdings by no less than RMB 10 million, with a target cap of RMB 20 million.
However, the challenge of convertible bond maturity is far from over for Jiangyin Bank. As of January 12, 2024, the amount of Jiangyin convertible bonds that have not yet been converted into shares is RMB 1.2 billion, accounting for 59.81% of the total issuance.
This situation is not unique to Jiangyin Bank, with many other bank convertible bonds facing similar challenges. Only four of the 17 bank convertible bonds have a conversion ratio of more than 10%, and 8 convertible bonds have a conversion ratio of less than 0.01%. The challenge for banks lies in converting these bonds into shares to replenish core tier one capital effectively.
Analysts point out that the conversion value of bank convertible bonds has not risen enough to trigger the redemption clause most of the time, resulting in compressed premium rates and fewer conversion opportunities. The situation calls for strategic coordination between bondholders and other institutions to exit bank convertible bonds in the form of equity conversion.
The industry may see more cases similar to “Everbright Convertible Bonds Converted to Equity at a Premium” in the future, as banks are under increasing pressure to replenish their core capital. The reemergence of the “Everbright Model” in the Jiangyin Bank scenario could signal a potential shift in the approach of convertible bondholders and banks towards equity conversion to address the challenges of convertible bond maturity.