What Is Cash Out Refinancing?

Refinancing refers to the direct financing of listed companies on the securities market by means of rights issues, additional issues and convertible bonds. Refinancing has greatly promoted the development of listed companies, and the refinancing function of China's securities market has received more and more attention from relevant parties. However, for various reasons, there are still some issues that cannot be ignored in the refinancing of listed companies.

Refinancing

Refinancing

First, there is a single financing method, with equity financing as the mainstay.

Listed companies have a strong preference for equity financing. Before 1998, the rights issue was on

The first is the IMF, which is a dark loan of fake stocks. The so-called fake stock dark loan, as the name implies, is that the investor invests in the project by way of equity but does not actually participate in the management of the project. At a certain time, the shares are withdrawn from the project. This way is mostly

I. The actual cost of funds for equity financing is low

The choice of financing method is largely affected by

Modern capital structure theory believes that the order of choice of corporate financing methods is first internal equity financing (that is, retained earnings), secondly debt financing, and finally external equity financing. The actual financing sequence of listed companies in China is equity financing, short-term debt financing, long-term debt financing, and endogenous financing. That is to say, there is a clear conflict between the financing sequence of China's listed companies and the modern capital structure theory regarding the pecking order principle. In fact, most listed companies on the one hand mostly maintain a much lower average asset-liability ratio than state-owned enterprises, but from the practical point of view, almost no one of the more than 1,000 listed companies will actively give up their use of re-issued shares for equity financing Opportunity.

Main reasons for China's listed companies' equity financing preferences:

I. Impact of financing costs on equity financing preferences

Refinancing operations

The refinancing cost is much lower than the debt financing cost, which is the main reason why listed companies are keen to refinance.

Impact of corporate governance structure on financing preferences

Most of China's listed companies are state-owned enterprises that have been reformed and listed through incremental issuance. They still have the brand of state-owned enterprises in terms of governance structure, which are specifically manifested in the following two characteristics: (1) Concentrated ownership and a dominant position. (2) State-owned shares and legal person shares have absolute advantages. Because listed companies in the Shanghai and Shenzhen stock markets are controlled by large shareholders, large shareholders may use the market s dual structure to obtain substantial appreciation of their assets through equity financing, while ignoring or even sacrificing the interests of other circulating shareholders.

Impact of assessment system on equity financing preferences

The management goal of a listed company should be to maximize shareholder benefits. However, the management of listed companies in China and investors' measurement of business performance are still accustomed to using the company's after-tax profit index as the main basis. Since the company's after-tax profit index only assesses the cost of debt in corporate indirect financing, it fails to evaluate equity financing The cost, even when assessed, is always low. Therefore, companies always hate debt financing and prefer equity financing.

Impact of earnings expectations on equity financing preferences

The statistical results show that from 1995 to 2001, the average return on assets after the rights issue of the rights issue company was lower than the one-year bank loan interest rate, and there was a downward trend year by year. In 1995, the return on assets of the financing companies in the last two years averaged 7.46%, and 25% of the companies had a return on assets of less than 4.65%, and 50% of the companies had a return on assets of less than 7.38%; The two-year average return on assets is 5.74%, and 25% of companies have a return on assets of less than 4.32%, and 50% of companies have a return on assets of less than 5.74%. If an enterprise uses debt financing, nearly 50% of the pre-tax profit before interest invested by the allotment company is insufficient to pay the bank loan interest. Further statistics show that after the company's rights issue, the return on assets has fallen sharply, with an average decline of 3.19 percentage points.

As the profitability of most companies has fallen sharply after refinancing, their return on assets is lower than the interest rate of bank loans, making major shareholders prefer equity financing.

V. Impact of other factors on equity financing preferences In addition to financing costs and corporate governance structure, listed company financing will also be affected by growth, financial conditions and other factors. Empirical research shows that the greater the decline in the profitability of listed companies in the future, the greater the risk of debt financing, the more equity financing of listed companies; the higher the level of profit, the greater the scope for expansion, the more equity financing of listed companies; The worse the nature, the smaller the scale of corporate equity financing; the more free cash the company has, the more abundant the funds, and the weaker its willingness to equity financing.

The higher the leverage ratio of the listed company, the stronger the willingness to equity financing, indicating that the listed company has a tendency to use equity financing to reduce the leverage ratio and avoid financial risks; the lower the shareholding ratio of the largest shareholder, the stronger the willingness to equity financing of the listed company, indicating that the greater the The less shareholders can effectively control a listed company to profit from the normal operations of a listed company, the stronger the willingness to profit from equity financing.

From the comprehensive analysis of influencing factors, although listed companies in Shanghai and Shenzhen stock markets prefer equity financing, their decision on whether or not equity financing is still affected by various factors such as the current profit level, future profit expectations, financial leverage ratio, corporate growth, and free cash ratio. It can be seen that, as an economic activity unit pursuing certain economic benefits, the factors that generally affect corporate financing and capital structure will still affect the financing decisions of listed companies.