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The pricing of financial products is generally based on the corresponding risk as an important consideration factor. However, for a long time in the past, the convertible bond market tended to believe that the background of the issuer, especially enterprises with state-owned background, usually had a higher reputation and solvency, and could even surpass the information conveyed by the company's financial data. The "belief in the hard redemption" of convertible bonds of state-owned enterprises was once very strong.

Under the general trend of breaking the rigid redemption, this situation has changed. Recently, a state-owned enterprise announced that it had defaulted on its convertible bonds and could not repay the principal and interest. This was the first case of a convertible bond default by a state-owned enterprise in China, and the belief in the rigid redemption of state-owned enterprises was broken.

2024 can be called the first year of substantial default of domestic convertible bonds. Since May, Soute, Hongda, Blue Shield and Lingnan convertible bonds have successively defaulted. Compared with the previous convertible bonds, the issuer of Lingnan convertible bonds has a state-owned background. Public data shows that in December 2022, the Management Committee of Zhongshan Torch High-tech Industrial Development Zone becameLingnan SharesTherefore, Lingnan Convertible Bonds are favored by institutional investors. In the list of the top ten holders of Lingnan Convertible Bonds, public funds, securities companies and other institutions occupy the main seats.

As an equity financing tool, the convertible bonds of A shares have a "debt-like" bottom and "equity-like" space in terms of mechanism design. Some analysts believe that this mechanism takes into account the common interests of issuers, investors, major shareholders and other participants to the greatest extent possible, and has typical "winner market" characteristics. Previously, even if there was a situation of insufficient solvency, investors' interests could still be protected as much as possible by lowering the conversion price. Moreover, for a long time, for publicly raisedBonds, and the issuer did try its best to maintain rigid payment. But it is precisely because of these past inertias that investors have a deviation in their perception of the risks of convertible bonds, which in turn strengthens the belief in rigid payment of convertible bonds, especially convertible bonds of state-owned enterprises. However, in the face of changes in the economic environment and the rigid requirements of breaking rigid payment at the policy level, the business conditions of enterprises will inevitably diverge, and the default of convertible bonds issued by some poorly managed and poorly qualified entities will naturally become a process that the market must go through.

In a mature market, the real operating and financial conditions of the relevant entities determine the risk level of their financial products. When making asset allocations, investors should focus on the operating and financial conditions of the issuer, rather than "elevating" or "discriminating" because of the other party's identity. The original intention of the policy to break the rigid redemption is to use the power of the market to match funds to the most efficient place based on "risk-return". Continuing to be obsessed with the rigid redemption of a certain background or identity is undoubtedly confined to the lazy thinking of the past, hoping to continue to lie in the rigid redemption warm house "contented".

The first case of convertible bond default of a state-owned enterprise has occurred. This is a small step for the convertible bond market, but it is also a big step towards allowing the market to play a role and allowing finance to support the high-quality development of the real economy.

Author: Wang Jun, Source:, original title: "It's time to let go of the belief in the rigid redemption of convertible bonds of state-owned enterprises"