Investment - FIN358: Convertible BOND Tutorial Chapter 4 PDF

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FIN358-INVESTMENT MANAGEMENTConvertible BondSAMPLE CASE STUDYAnti-Mage Bhd. has issued a convertible bond worth RM40,000,000(CTR) with a 20-year maturity period and a coupon interest rate of 8% to finance their new gaming project namely DoTA XX. The conversion price is set at a premium of 25% from c...

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FIN358-INVESTMENT MANAGEMENT Convertible Bond SAMPLE CASE STUDY Anti-Mage Bhd. has issued a convertible bond worth RM40,000,000(CTR) with a 20-year maturity period and a coupon interest rate of 8% to finance their new gaming project namely DoTA XX. The conversion price is set at a premium of 25% from current market price of common stock of the company. The stock is currently trading at RM25(MPCS). It is expected that the new project can boost the company’s operating revenue by 40%. The company currently recorded RM75,000,000 operating revenue in their income statements. The current tax rate is 30%. The company paid its preferred shareholder RM3,000,000 dividend during the year and the number of outstanding shares is 17,000,000 shares. Calculate the following: a) b) c) d) e) f)

Conversion price Conversion ratio Conversion value Conversion premium in % and value (RM) Number of new shares to be issued if the bond is fully converted Earnings per share (EPS) i. After financing but before conversion ii. Partial conversion of 60% iii. Full conversion iv. Before financing Conversion price 25 x (1+0.25)=RM31.25 Conversion ratio PV/CP 1,000/31.25=32 shares Conversion value CR x MPcs 32 x 25=RM800 Conversion premium (in RM) - Bond MP Bond - CV 1,000 - 800=RM200

Conversion premium in % - Bond (MP bond/PV - CV)/CV (1,000 - 800)/800 = 0.25@25% Conversion premium (in RM) - Share CP - MP 31.25 - 25 = RM6.25 Conversion premium in % - share (CP - MP)/MP (31.25 - 25)/25 = 0.25@25% Number of new shares to be issued if the bond is fully converted ATR/CP@VB/CP 40,000,000/31.25=1,280,000 Shares

EBIT

(-)INTEREST

EBT

BEFORE FINANCING

AFTER FINANCING BEFORE CONVERSION

FULL PARTIAL CONVERSION CONVERSION (60%) 60%-shares 40%-bond(liability)

75,000,000 (Old)

(1.4 x 75,000,000)(New) =105,000,000

(1.4 x 75,000,000)(New) =105,000,000

(1.4 x 75,000,000)(New) =105,000,000

0

8% x 40,000,000 (=3,200,000)

8% x 40,000,000 x40% = (1,280,000)

0

75,000,000

101,800,000

103,720,000

105,000,000

(-)TAX (30%)

0.3 x 75,000,000 (=22,500,000)

0.3 x 101,800,000 (=30,540,000)

0.3 x 103,720,000 (=31,116,000)

0.3 x 105,000,000 (=31,500,000)

EAT/A.N.I

52,500,000

71,260,000

72,604,000

73,500,000

(-)P.S.D

(3,000,000)

(3,000,000)

(3,000,000)

(3,000,000)

EAT/D.N.I

49,500,000

68,260,000

69,604,000

70,500,000

N.O.S

17,000,000

17,000,000

(OLD + NEW (% of Conversion)

(OLD+NEW nos)

17,000,000 + (1,280,000 x 0.6) =17,768,000 EPS (RM) (D.N.I/EAT/NOS)

2.9117

4.0152

3.92

17,000,000 + 1,280,000 =18,280,000 3.8566

A.N.I -Attributable net income D.N.I-Distributable net income increase by (+), but increase to (the increment already add into the total) increase by 10% from 1,000,000 = (1.1 x 1,000,000)@1,000,000 + (10% x 1,000,000) = 1,100,000 increase to 1,000,000 = Do nothing since the profit now increase TO 1,000,000...