Necessity of Issuing Securities and Choosing the Type of Securities for This Issuance
Zhejiang Zhaofeng Electromechanical Co., Ltd. (hereinafter referred to as "the Company" or "Zhaofeng Shares") is a listed company on the Growth Enterprise Market of the Shenzhen Stock Exchange (hereinafter referred to as "SZSE"). To meet the needs of the Company's business development, enhance its capital strength and market competitiveness, and promote its long-term development, in accordance with the "Company Law of the People's Republic of China" (hereinafter referred to as "Company Law"), the "Securities Law of the People's Republic of China" (hereinafter referred to as "Securities Law"), the "Administrative Measures for the Registration of Issuance of Securities by Listed Companies" (hereinafter referred to as "Registration Measures"), and other relevant laws, regulations, and normative documents, the Company plans to issue convertible corporate bonds (hereinafter referred to as "convertible bonds") to unspecified targets to raise funds.
(1) Type of Securities to be Issued in This Issuance
The type of securities the Company plans to issue in this issuance is convertible corporate bonds that can be converted into the Company's A-share stocks. These convertible bonds and the Company's A-share stocks that will be converted from these convertible bonds in the future will be listed on the SZSE.
(2) Necessity of Choosing the Type of Securities for This Issuance
1. Meeting the Funding Needs of the Investment Projects to be Funded by This Issuance
The investment projects to be funded by the proceeds from the issuance of convertible bonds to unspecified targets have been carefully evaluated by the Company. The implementation of these projects will further enhance the Company's core competitiveness and strengthen its sustainable development capabilities. For a detailed analysis, please refer to the "Feasibility Analysis Report on the Use of Proceeds from the Issuance of Convertible Corporate Bonds to Unspecified Targets by Zhejiang Zhaofeng Electromechanical Co., Ltd." announced by the Company on the same day.
2. Limitations of Traditional Debt Financing Methods Such as Bank Loans
The Company focuses on sustainable development. Traditional debt financing methods such as bank loans have relatively high financing costs and limited financing amounts. If the funds for the investment projects in this issuance were entirely obtained through bank loans, the Company's asset-liability ratio would significantly increase. Moreover, all debt would need to be repaid in cash upon maturity, potentially leading to a mismatch between short-term debt and long-term assets, affecting the Company's stable financial structure, and increasing operational and financial risks, which is not conducive to the Company's long-term sustainable development. At the same time, bank loan financing will generate high interest expenses and other financial costs, which may reduce the Company's profitability and shareholder returns.
3. Convertible Bonds Have Both Debt and Equity Characteristics, Helping to Reduce the Company's Financing Costs
When convertible bonds meet the conditions for conversion, bondholders can convert their convertible bonds into the Company's shares. Therefore, they have both debt and equity financing characteristics. When holders exercise their conversion rights, it helps reduce the Company's debt repayment pressure. Compared with traditional debt financing methods such as bank loans, convertible bonds usually have a lower coupon rate, which helps reduce the Company's financing costs. The Company's choice to issue convertible corporate bonds in this issuance to meet the funding needs of the investment projects can optimize its capital structure, reduce financing costs, increase shareholder returns, and match the Company's long-term stable development needs, which is necessary.