Annual Report 2012

Financial Statements (International)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2012
29 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued)
Notes: (Continued)
(e) On 1 March 2011, the Company issued convertible bonds due 2017 with an aggregate principal amount of RMB 23 billion in the PRC (the “2011 Convertible Bonds”).
The 2011 Convertible Bonds are issued at par value of RMB 100 and bear a fixed interest rate of 0.5% per annum for the first year, 0.7% for the second year, 1.0%
for the third year, 1.3% for the fourth year, 1.8% for the fifth year and 2.0% for the sixth year, payable annually. The holders can convert the 2011 Convertible Bonds
into shares of the Company from 24 August 2011 onwards at an initial conversion price of RMB 9.73 per share, subject to adjustment for, amongst other things,
cash dividends, subdivision or consolidation of shares, bonus issues, issue of new shares, rights issues, capital distribution, change of control and other events which
have an effect on the issued share capital of the Company (the “Conversion Option”). Unless previously redeemed, converted or purchased and cancelled, the 2011
Convertible Bonds will be redeemed within 5 trading days after maturity at 107% of the principal amount, including interest for the sixth year. The initial carrying
amounts of the liability component and the derivative component, representing the Conversion Option of the 2011 Convertible Bonds, were RMB 19,279 million and
RMB 3,610 million, respectively.
During the term of the 2011 Convertible Bonds, the conversion price may be subject to downward adjustment that if the closing prices of the Company’s A Shares in
any fifteen trading days out of any thirty consecutive trading days are lower than 80% of the prevailing conversion price, the board of directors may propose downward
adjustment to the conversion price subject to the shareholders’ approval. The adjusted conversion price shall be not less than (a) the average trading price of the
Company’s A Shares for the twenty trading days prior to the shareholders’ approval, (b) the average trading price of the Company’s A Shares on the day immediately
before the shareholders’ approval, (c) the net asset value per share based on the latest audited financial statements prepared under ASBE, and (d) the nominal value
per share.
As at 31 December 2012, the carrying amounts of the liability component and the derivative component were RMB 20,104 million (2011: RMB 20,017 million) and
RMB 2,462 million (2011: RMB 2,610 million), respectively.
During the year ended 31 December 2012, the conversion price of the 2011 Convertible Bonds was adjusted to RMB 6.98 per share as a result of the final dividends
for the year ended 31 December 2011 and the interim dividends for the year ended 31 December 2012 declared and paid during the year.
During the year ended 31 December 2012, RMB 857,033 thousand of the 2011 Convertible Bonds were converted into 117,724,450 A shares of the Company.
As at 31 December 2012 and 2011, the fair value of the derivative component of the 2011 Convertible Bonds was calculated using the Binomial Model. The followings
are the major inputs used in the Binomial Model:
172
Annual Report 2012 CHINA PETROLEUM & CHEMICAL CORPORATION
2012 2011
Stock price of A shares RMB 6.92 RMB 7.18
Conversion price RMB 6.98 RMB 7.28
Credit spread 120 basis points 180 basis points
RMB onshore swap rate 3.66% 2.81%
Any change in the major inputs into the Binomial Model will result in changes in the fair value of the derivative component. The changes in the fair value of the
derivative component from 31 December 2011 to 31 December 2012 resulted in an unrealised loss of RMB 19 million (2011: an unrealised gain of RMB 1,000
million), which has been recorded in the “finance costs” section of the consolidated income statement for year ended 31 December 2012.
The initial carrying amount of the liability component of the 2011 Convertible Bonds is the residual amount, which is after deducting the allocated issuance cost of
the 2011 Convertible Bonds relating to the liability component and the fair value of the derivative component as at 1 March 2011. Interest expense is calculated using
the effective interest method by applying the effective interest rate of 5.10% to the adjusted liability component. Should the aforesaid derivative component not been
separated out and the entire 2011 Convertible Bonds been considered as the liability component, the effective interest rate would have been 2.07%.