Question

In: Finance

In 2010, UBS Bhd. issued RM500 million of 4.5% senior unsecured six-year convertible bonds. The bonds...

In 2010, UBS Bhd. issued RM500 million of 4.5% senior unsecured six-year convertible bonds. The bonds were issued at the face value of RM1,000 per bond. The conversion price is RM38.75 per share, in which is a premium of 35% to the recent stock price.

Required:

(i) Suppose that the yield on bond is 5.5% and the bondholders can redeem the bond at a premium of 10% to their nominal value upon maturity, analyse the floor value of bond.

(ii) Analyse whether the bondholders should convert the bonds, given that the share price of UBS in 2016 is RM45.

Analyse also the additional shares will UBS need to issue if the bondholders do convert the bonds.

Solutions

Expert Solution

(i) Face value                       1,000
Number of Bonds                  500,000 (500000000/1000)
Annual Coupon payment per bond                             45 (0.045*1000)
Number of years                               6
Terminal payment on maturity per bond                       1,100 (1.1*1000)
Market yield 5.50%
Present Value (PV) of future cash flow at market yield of 5.5%                 1,022.57 (Using PV function of excel with Rate=5.5%,Nper=6, Pmt=-45, FV=-1100)
Floor Value of Bond                 1,022.57 RM
Total Bond Amount    511,284,640.11 (500000*1022.57)
(ii) Share Price 45
Conversion price 38.75
Number of shares received per bond 25.80645161 (1000/38.75)
Market price of the shares received per Bond 1161.290323 (45*25.80645161)
This amount is higher than the terminal cash flow of $1100 at maturity
BONDHOLDERS SHOULD CONVERT THE BONDS
Additional shares need to be issued for conversion            12,903,226 (500000*25.80645161)


jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

The company issued the following debt: senior unsecured debt, secured bonds (backed by a mortgage on...
The company issued the following debt: senior unsecured debt, secured bonds (backed by a mortgage on a firm’s property) and shareholder loans. In case of default the group of investors that will be served as first from the proceeds from selling the property is: A. Holders of senior unsecured debt B. Holders of secured debt C. Shareholders who provided loan to the company
On January 1, 2020 company issued $ 1.5 million of five year, 6% convertible bonds at...
On January 1, 2020 company issued $ 1.5 million of five year, 6% convertible bonds at par value. Each $ 1000 bond is convertible into 100 common shares. A similar bond (without conversion feature) would have been issued at a market yield of 9%. In the same year on December 31, $ 2000,000 worth of bonds were converted to common shares. Required: Calculate the value of the bond according to IFRS and ASPE and also show the journal entries. The...
On January 1, 2015, Hacker Inc. issued (sold) $600,000 of 8%, six-year, convertible bonds for gross...
On January 1, 2015, Hacker Inc. issued (sold) $600,000 of 8%, six-year, convertible bonds for gross proceeds of $660,000. Each $1,000 bond was convertible into 20 common shares. Similar non-convertible bonds were yielding 9% at that time.   Interest was paid semi-annually, on June 30 and December 31. On July 1, 2019, all bondholders exercised the conversion option and converted the bonds to common shares. The interest payment had been made on June 30, 2019, as normal. The company prepares its...
TREATMENT OF CONVERTIBLE DEBENTURES LS Limited issued 1 million six-year debentures on 1 January 2018 at...
TREATMENT OF CONVERTIBLE DEBENTURES LS Limited issued 1 million six-year debentures on 1 January 2018 at par value of £ 100 each at a fixed rate of 6% per annum. Interest payable at the end of each year whereas the principal is to be repaid in two equal installments at the end of 2022 and 2023. Debentures were issued with an option to convert 10 debentures into 4 ordinary shares of LS Limited till the date of first principal redemption....
On January 1, 2023, Comet Products issued $40 million of 6%, 10-year convertible bonds at a...
On January 1, 2023, Comet Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8 million. The effective interest rate on the bond is 6.1352734%. Comet recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 20 shares of Comet's no par ordinary shares. On June 1, 2025, Comet notified bondholders of its intent to...
On January 1, 2018, Fowl Products issued $78 million of 8%, 10-year convertible bonds at a...
On January 1, 2018, Fowl Products issued $78 million of 8%, 10-year convertible bonds at a net price of $79.4 million. Fowl recently issued similar, but nonconvertible, bonds at 98 (that is, 98% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Fowl’s no par common stock. Fowl records interest by the straight-line method.    On June 1, 2020, Fowl notified bondholders of its intent to call...
On January 1, 2018, Madison Products issued $41.5 million of 6%, 10-year convertible bonds at a...
On January 1, 2018, Madison Products issued $41.5 million of 6%, 10-year convertible bonds at a net price of $42.45 million. Madison recently issued similar, but nonconvertible, bonds at 98 (that is, 98% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method. On June 1, 2020, Madison notified bondholders of its intent to call the...
On January 1, 2018, Madison Products issued $41.7 million of 6%, 10-year convertible bonds at a...
On January 1, 2018, Madison Products issued $41.7 million of 6%, 10-year convertible bonds at a net price of $42.67 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method. On June 1, 2020, Madison notified bondholders of its intent to call the...
On January 1, 2018, Madison Products issued $41.7 million of 6%, 10-year convertible bonds at a...
On January 1, 2018, Madison Products issued $41.7 million of 6%, 10-year convertible bonds at a net price of $42.67 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method. On June 1, 2020, Madison notified bondholders of its intent to call the...
The 8% $30 million convertible loan note was issued on 1 April, 2010 at par. Interest...
The 8% $30 million convertible loan note was issued on 1 April, 2010 at par. Interest is payable annually in arrears on 31 March each year. The loan note is redeemable at par on 31 March, 2013 or convertible into equity shares at the option of the loan note holders on the basis of 30 equity shares for each $100 of loan note. The company’s finance director has calculated that to issue an equivalent loan note without the conversion rights...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT