Dekang Agriculture and Animal Husbandry (02419) implemented refinancing for the first time since listing, optimizing the financial structure to accumulate energy for a new cycle

On July 26, Dekang Agriculture and Animal Husbandry (02419) announced its intention to issue US$100 million zero-interest convertible bonds due in 2027. This is the first time that the company has initiated refinancing since its listing in December 2023. The initial conversion price was HK$54.08 per H share, a 5% premium over the closing price of HK$51.50 before the announcement.

Some investors may have questions about this. At a time when pig prices continue to be sluggish, is Dekang Agriculture and Animal Husbandry running out of money when choosing to issue bonds? However, if you look over the company's earnings report, you'll find that this speculation is untenable. In 2025, the net operating cash flow of Dekang Agriculture and Animal Husbandry reached 2,531 billion yuan. By the end of the year, the company had nearly 10 billion yuan in monetary capital and bank credit, and had sufficient capital; in terms of solvency, the company's balance ratio at the end of last year was 61.94%, an optimization of 2.46 percentage points compared to the same period last year. It can also be seen from this that Dekang Agriculture and Animal Husbandry's debt issuance this time probably has nothing to do with “lack of money,” but rather an active financial structure optimization.

According to the announcement, the net proceeds from Dekang Agriculture and Animal Husbandry's current bond issuance are about 99.7 million US dollars, of which 40% will be used to repay bank loans due within one year, 30% to purchase feed, and 30% to purchase raw materials and other production inputs. Specifically, the portion used for debt repayment corresponds to the company's short-term bank loans of about RMB 2,539 billion and part of medium- to long-term loans maturing within one year. The annual interest rate for this batch of loans is between 0.82% and 4.75%, and the maturity dates are concentrated from August 2026 to July 2027. In other words, Dekang Agriculture and Animal Husbandry uses extremely low-cost US dollar bonds to replace part of domestic short-term bank loans with relatively high interest rates. Replacing high-cost liabilities with low-cost capital at the bottom of the industry cycle can be seen as an active optimization of the financial structure.

From an investor's perspective, compared to increased issuance at a discount, Dekang Agriculture and Animal Husbandry's choice to issue convertible bonds at a premium also takes into account investors' needs to the greatest extent: the nature of convertible bonds provides principal protection, while share conversion options give investors an investment opportunity to enjoy the dividends of rising stock prices. Furthermore, the expansion of the H share circulation market after stock conversion will also significantly increase the liquidity of stocks and coverage with international investors.

Going back to the premium rate itself, 5% may not seem high, but when examined under the framework of a zero-interest bond with a term of only about one year, Zhitong Finance believes that this pricing is reasonable: investors gave up a year's interest income in exchange for a call option to buy Dekang Agriculture and Animal Husbandry shares at HK$54.08. The “aggressive, retractable” nature of convertible bonds enables investors not only to participate in cycle reversals with limited downside risk, but also not to directly bear the uncertainty of stock price fluctuations at the bottom. If pig prices reach an inflection point within a year and Dekang's agricultural and animal husbandry cost advantage continues to be realized, the share transfer will directly share the benefits of rising stock prices; even if the industry recovers slower than expected, the principal amount can be recovered (redeemed at 101% at maturity). At the bottom of the current cycle, international investors are willing to buy Dekang Agriculture and Animal Husbandry's call options at a 5% premium, essentially a high recognition of the company's management's reputation and bottom value.

Looking at a longer cycle, the significance of issuing bonds this time is more than just financing 100 million US dollars. This is the first capital market refinancing in the nearly three years since Dekang Agriculture and Animal Husbandry went public. The scale is moderate and the period is short. It is more like a “test of the waters”. The zero-interest design makes the company's actual financing costs extremely low; premium issuance avoids diluting shareholders' rights at the bottom of the stock price; it is carried out under general authorization and does not require further shareholders' approval, and the process is efficient. Referring to industry experience, the premium issuance of H-share convertible bonds can effectively protect the interests of existing shareholders, and can significantly improve the liquidity and international investor coverage of H shares after stock conversion. If the first investors receive good returns within a one-year period, it will lay a solid market foundation for the company to carry out large-scale and longer-cycle capital operations in the future. Therefore, from all aspects, Dekang Agriculture and Animal Husbandry's current bond issuance itself was a successful market communication.

Finally, from an industry perspective, the signs that the pig cycle is breaking out are now becoming more and more clear. According to Yongyi Consulting data, the reduction of industry production capacity accelerated markedly in the second quarter of 2026. In July, the average price of pigs nationwide rebounded strongly from 9.6 yuan/kg in June to 11.2 yuan/kg. As the effects of production capacity removal gradually materialize in the second half of the year, compounded by the traditional peak consumption season in the fourth quarter, the industry's supply and demand pattern is expected to usher in substantial restoration. Dekang Agriculture and Animal Husbandry has now launched low-cost refinancing, which can be said to have completed critical energy for future cycle reversals.