Siam Sindhorn

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  • Topic: Bond, Stock market, Stock
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  • Published : January 23, 2011
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Siam
Sindhorn
Co.,
Ltd.
 Applied
Financial
Engineering


The
logic
behind
the
original
deal










To
be
achieved
through
the
deal:


‐  Clean‐up
the
crossholding
structure
because
of
 up‐coming
IPO
(dispose
of
6%
L&H
shares)
 ‐  Minimize
capital
gain
tax
on
stock
sale:
new
 BHV
based
in
BriOsh
Virgin
Islands
will
issue
 bonds
and
sell
them
at
the
book
value
 ‐  AQract
foreign
investors
 ‐  Receive
financing
for
company’s
acOviOes


09/11/2011


8


Advantages
for
the
shareholders:

‐  Minimizing
bankruptcy
costs
‐
in
case
of
financial
distress
 exchanging
bonds
to
exchange
property
may
stave
off
 bankruptcy

(this
is
the
special
feature
of
exchangeable
bonds,
 converOble
bonds
do
not
bear
this
advantage)
 Dispose
of
the
shares
without
paying
30%
capital
gain
tax
 Raising
cheap
debt
‐
company
is
able
to
offer
the
bond
at
a
 lower
coupon
rate
‐
less
than
it
would
have
to
pay
on
a
straight
 bond
 Bondholders
are
not
enOtled
to
vote
=>
voOng
control
remains
 in
the
hands
of
the
common
stockholders
 Bond
interest
is
a
deducOble
expense
for
the
issuing
company
 Delayed
diluOon
of
common
stock
and
earnings
per
share
(EPS)


‐  ‐ 

‐  ‐  ‐ 

Main
components
of
the
deal
(1)

Exchangeable
Bonds
 QuanOty

 








 Face
Value
 Coupon
 Maturity
 Bond
Exchange
Rate
 Exchange
Property
 
 9
000
 $10
000
 2%
p.a.
 31.7.2000
 1
bond
=
598.26
shares
 5
384
355
shares

 of
Land
&
Houses
 Warrants
 QuanOty
 
 2
610
000
 Exercisable
 31.8.1995
–
23.7.1998
 Exercise
price
 422.92
Baht

 1
bond
=
290
warrants
(issued
together,
dealt
 separately
ager
30
days)


Loyalty
Warrants
 
 1
bond
held
31.7.1995
=
167
warrants
 Exercise
price
=
last
month’s
average
share
 price


Warrant
Exercise
Period
 31.8.1995
 23.7.1998
 23.7.2000


31.10.1995


Bond
Exchange
Period
 31.7.1997


31.7.1995


96
 Loyalty
warrants


98


99


31.7.2000

8


09/11/2011


Main
components
of
the
deal
(2)












Component
of
 Exchangeable
 Warrant
 the
deal
 Bond
 (decomposable
 to
bond
+
opHon)
 AKracHveness
 ‐  xchangeability
 E for
the
 ‐  afe
investment
 S investor
 ‐  uaranteed
 G coupon
payments
 ‐  pen
access
to
L&H
stocks
 O and
SET
which
show
good
 performance
 ‐  igh
rate
of
return
on
stock
 H ‐Allow
addiOonal
stock
 registraOon
on
the
name
of
 non‐Thai
person


Loyalty
warrant


‐  ddiOonal

value
for
 A the
investor
(167
 warrants
per
bond
 ‐  xercisable
even
in
 E case
of
market
 downturn
 ‐  alue
determined
on
 V the
basis
of
prevailing
 share
price
 ‐  ddiOonal
sweetener
 A to
aQract
interest
to
 the
issue


AKracHveness
 ‐
Low
coupon
rate
 ‐  llow
disposal
of
L&H
 A for
the
issuer
 ‐
RedempOon
 shares
at
lower
tax
rate
 possibility


09/11/2011


Value
of
the
exchangeable
bond
consists
of:

Financial
 instrument
 value
 EvaluaOon
 methodology
 Bond
 ‐
Present
value
 approach
 OpHon
 ‐  lack‐Scholes

 B model
 ‐  inomial
method
 B of
opOon
valuaOon
 Warrant
 Loyalty
warrant


Deal
pricing
(1)


‐  lack‐Scholes

 B ‐  lack‐Scholes

 B model
 model
 ‐  inomial
method
 B of
opOon
valuaOon


Reasoning
 behind
the
 methodology


Knowing
the
 discount
rate
we
 may
calculate
the
 present
value
of
the
 bond
with
coupon
 payments


These
are
most
 widely
used

opOon
 valuaOon
 techniques.




Value
of
warrant
is
 somewhat
close
to
 the
value
of
the
 opOon
embedded
 in
the
bond


Hard
to
predict
 state
of
the
market
 on
such
a
long
 interval


09/11/2011


Exchangeable
Bond
ValuaOon

Bond
valuaHon
 DecomposiOon:

 1. Face
Value
 2. Coupon


•  •  •  •  •  • 

Present
value
formula
is
uOlized
 C
–
coupon
payments
 M
–
face
value
equal
to
10
000
 I
=
9,3%
(6,3%
risk
free
+
3%
premium)
 n
–
number
of
years
=
5
 PV=
$7182,52


09/11/2011


Exchangeable
Bond
ValuaOon

OpHon
valuaHon

Based
on
data
we
have
we
decided
to
apply
Black‐Scholes
formula
for
valuing
an
opOon.
(hQp:// www.maxi‐pedia.com/Black+Scholes+formula+opOon+value+calculator
)


Variables

Current
Share
Price
...
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