China Mobile has taken further action! On October 24, Shanghai Pudong Development Bank (SPDB) announced that it has received a notification from China Mobile Communications Group Guangdong Co., Ltd. (hereinafter referred to as "China Mobile") regarding the conversion of 14.83828 million SPDB convertible bonds into 118.6 million ordinary shares of the bank. Following this conversion, China Mobile's equity stake in SPDB increases from 17.88% to 18.18%, hitting a whole number increment. This is not the first move by China Mobile in recent times; it has announced multiple times on October 13, 17, and 24, regarding the increase of its holdings in SPDB through the conversion of convertible bonds. China Mobile's continuous actions are noteworthy. As of the end of June this year, China Mobile held a total of 5.335 billion shares of SPDB, accounting for 17.63% of the bank's total capital, making it the third-largest shareholder. Additionally, China Mobile holds 90.85323 million SPDB convertible bonds, being the largest holder of these bonds. In October, the SPDB convertible bonds entered the final month before maturity. Throughout this month, China Mobile has converted its SPDB convertible bonds into the bank’s ordinary shares three times. Specifically, on October 13, 17, and 24, China Mobile announced the conversion of 56.31454 million, 18.74071 million, and 14.83828 million SPDB convertible bonds, respectively. After these conversions, China Mobile's holdings in SPDB increased to 6.053 billion shares, raising its stake to 18.18%. In its announcement, China Mobile stated that the conversion is beneficial for SPDB to supplement its core tier one capital, enhance its capital strength, and improve its capacity to withstand risks. Furthermore, it allows the company to better share in the operational results of the bank. Therefore, the company's directors believe that the terms and conditions of the conversion are fair and reasonable, aligned with the overall interests of the company and its shareholders. It is estimated that after the three conversions, China Mobile still holds 959,700 SPDB convertible bonds. According to regulations, before October 27, holders of the SPDB convertible bonds can still convert them into company shares under agreed conditions. Assuming China Mobile converts all remaining SPDB convertible bonds, based on the latest conversion price of 12.51 yuan per share, the quantity of shares held by China Mobile will increase by an additional 7.6715 million shares, totaling 6.061 billion shares. As of the end of June, the second-largest shareholder of SPDB, Funde Life Insurance, owned 6.065 billion shares. Before China Mobile’s conversion, SPDB disclosed on September 30 that, based on confidence in the bank’s future operational development, Oriental Asset Management and its parties acting in concert increased their holdings through secondary market purchases of ordinary shares and the conversion of convertible bonds. As of September 29, Oriental Asset held 1.073 billion ordinary shares of the bank, in addition to holding 8.6 million convertible bonds. Earlier, Xinda Asset also became a major shareholder by increasing its holdings of convertible bonds and swiftly converting them: on June 27, Xinda Investment converted nearly 118 million SPDB convertible bonds into the bank's ordinary shares, resulting in a total conversion of 912 million shares. SPDB Convertible Bonds Set to Delist On October 17, SPDB released an announcement regarding the maturity payout and delisting of SPDB convertible bonds, stating that trading will cease starting October 23, with delisting on the Shanghai Stock Exchange effective October 28. The maturity payout will amount to 110 yuan per bond. After trading ceases, and before the conversion period ends (from October 23 to October 27), holders of SPDB convertible bonds can still convert their bonds into company shares under agreed conditions. Previously, SPDB had issued three announcements since mid-September stating that it would redeem all unconverted convertible bonds at 110% of their face value (including the final annual interest). The total payout upon maturity for the SPDB convertible bonds is 110 yuan per bond (including tax). According to publicly available information, the SPDB convertible bonds were officially issued on October 28, 2019, with a total amount of 50 billion yuan. The conversion period began on May 6, 2020, but the conversion situation was not ideal—by the end of March this year, the unconverted amount of SPDB convertible bonds accounted for 99.9971%. It wasn't until the end of June that Xinda Investment stepped in as a "white knight," increasing its holdings of nearly 118 million SPDB convertible bonds in a single day and swiftly completing the conversion, entering the bank's top ten shareholders. For the remaining SPDB convertible bonds, the market initially anticipated that they might benefit from the rising price of the underlying stock, triggering an early redemption and facilitating conversion. However, since the second half of the year, the A-share banking sector has generally been on a downward trajectory. Ultimately, SPDB also announced its exit from the market via a maturity payout. Just before delisting, Oriental Asset made a significant increase in holdings through the secondary market and convertible bond conversions, making it into the bank's top ten shareholders. Data shows that in the third quarter of this year, a total of 13.64 billion yuan of SPDB convertible bonds converted into ordinary shares of SPDB, with a total conversion of 1.09 billion shares. In October, China Mobile became the main player, completing multiple conversions in succession. As of October 24, the remaining unconverted SPDB convertible bonds amounted to approximately 164 million yuan, including the 95.97 million yuan still held by China Mobile. This means that from October 1 to 24, a total of 24.4 billion yuan of SPDB convertible bonds were converted, accelerating the pace significantly. Estimates suggest that since the SPDB convertible bonds entered the conversion period in 2020, the total capital of SPDB has increased by approximately 3.954 billion shares to 33.306 billion shares due to the conversion of convertible bonds. Massive Delisting of Bank Convertible Bonds In reality, only successful conversions of bank convertible bonds can be fully counted in core tier one capital; otherwise, the issuer must repay the principal and interest at maturity. Typically, when the stock price consistently exceeds the conversion price, some short-term investors might opt for conversion for profit. However, mass conversions require triggering conditional redemption clauses, which are generally set at 1.3 times the current conversion price, along with satisfying closing price requirements. This poses challenges for listed banks that have long been trading below their net asset value. "The demand side for bank convertible bonds has remained high due to their strong credit quality, significant risk resistance attributes, and outstanding stock dividend yields, making them a favored underlying asset for convertible bond investors. However, on the supply side, due to the long-term undervaluation of the banking sector, the issuance of new bank convertible bonds has essentially been stagnant since 2023," noted a report by Zhongyou Securities. However, since September of last year, the A-share banking sector has experienced rapid growth, prompting several banks, including Chengdu Bank and Suzhou Bank, to cause their convertible bonds to trigger conditional redemption. The Chengdu Banking Convertible Bonds, Suzhou Banking Convertible Bonds, Nanyin Convertible Bonds, Hangyin Convertible Bonds, and Qilu Convertible Bonds have all triggered conditional redemption clauses, resulting in eventual delisting, while CITIC Convertible Bonds also expired and delisted in March this year. According to a report from Caitong Securities, following the delisting of SPDB convertible bonds, the remaining bank convertible bond scale will drop to below 90 billion yuan, with the power equipment sector surpassing banking to become the largest sector in terms of convertible bond scale. At the same time, Caitong Securities indicated that with the gradual exit of bank convertible bonds from the market, some fund products face challenges of missing core asset allocations, leading to four main alternative strategies: first, adding longer duration dividend stock convertible bonds as stable core holdings; second, relatively inexpensive, high-value bank convertible bonds; third, convertible bond varieties with around 2 years remaining and yields between 0%-8%, which combine defensiveness and yield elasticity, showing strong anti-dip characteristics amid market volatility; fourth, state-owned enterprise convertible bonds with positive yields due to potential policy support and superior credit can serve as alternative choices to bank convertible bonds.