Read the following article of "Bear market offers chance for mid-caps to issue convertible bonds". convertible bond is $1,000, with coupons payable semi-annually and a conversion price of $5. Conversion may take place at any time over the next two years. Bear market offers chance for mid-caps to issue convertible bonds Current market price of the convertible bond is $980. Yield to maturity of coupon bonds of a similar risk profile is 8%. Panva's shares are currently trading at $4.8 per share. The board of directors expects its share price to rise at 10% per year. Regional institutional investors are turning to the convertible bond market as an equity bear market drags into its fourth year, according to Morgan Stanley. Managing director Daniel Palmer said sufficient convertible bond issues by blue-chip names were in short supply, which was opening the way for mid-cap companies to obtain funding through the asset class Source: Adapted and modified from Ma R., 'Bear market offers chance for mid-caps to issue convertible bonds'. 2003 April 15. South China Morning Post Answer the following questions Over the weekend, Morgan Stanley placed a US$50 million convertible bond issue for Panva Gas Holdings - a Growth Enterprise Market-listed mainland utility. Unlike in other markets, where convertible bonds are synonymous with fast growing companies, most such issues in Hong Kong have focused on blue chips. (a) Assume that bond interest has already been paid. No dividend is anticipated for next two years. As a holder of Panva's convertible bond, advise which of the following actions would maximize the value of your investment with a comparison of payoff from each alternative. While declining to disclose the exact over-subscription amount of the Panva issue, Mr Palmer said the bonds were comfortably subscribed'. The interesting message for mid-caps is that six months ago, probably an investment bank would say that you are too small, your market cap is not large enough, and your shares don't trade enough, said Mr Palmer, head of Morgan Stanley's regional equity capital markets team. 0 Hold the bond until maturity (ii) Sell the bond immediately (iii) Convert the bond to shares now (iv) Convert the bond to shares at the end of second year. "I think what the Panva transaction does is demonstrate the market is interested in this mid-cap sector and we are determined to do more of this business. He said the investment bank was discussing with a "handful of mid-cap companies' fund-raising exercises through the convertible bond market. (b) Explain the differences in payoffs from actions (1), (ii) and (ii). (c) Discuss three reasons why firms use leasing as a way of financing Panva has issued 6% convertible bond, redeemable in five years. The face value of the Read the following article of "Bear market offers chance for mid-caps to issue convertible bonds". convertible bond is $1,000, with coupons payable semi-annually and a conversion price of $5. Conversion may take place at any time over the next two years. Bear market offers chance for mid-caps to issue convertible bonds Current market price of the convertible bond is $980. Yield to maturity of coupon bonds of a similar risk profile is 8%. Panva's shares are currently trading at $4.8 per share. The board of directors expects its share price to rise at 10% per year. Regional institutional investors are turning to the convertible bond market as an equity bear market drags into its fourth year, according to Morgan Stanley. Managing director Daniel Palmer said sufficient convertible bond issues by blue-chip names were in short supply, which was opening the way for mid-cap companies to obtain funding through the asset class Source: Adapted and modified from Ma R., 'Bear market offers chance for mid-caps to issue convertible bonds'. 2003 April 15. South China Morning Post Answer the following questions Over the weekend, Morgan Stanley placed a US$50 million convertible bond issue for Panva Gas Holdings - a Growth Enterprise Market-listed mainland utility. Unlike in other markets, where convertible bonds are synonymous with fast growing companies, most such issues in Hong Kong have focused on blue chips. (a) Assume that bond interest has already been paid. No dividend is anticipated for next two years. As a holder of Panva's convertible bond, advise which of the following actions would maximize the value of your investment with a comparison of payoff from each alternative. While declining to disclose the exact over-subscription amount of the Panva issue, Mr Palmer said the bonds were comfortably subscribed'. The interesting message for mid-caps is that six months ago, probably an investment bank would say that you are too small, your market cap is not large enough, and your shares don't trade enough, said Mr Palmer, head of Morgan Stanley's regional equity capital markets team. 0 Hold the bond until maturity (ii) Sell the bond immediately (iii) Convert the bond to shares now (iv) Convert the bond to shares at the end of second year. "I think what the Panva transaction does is demonstrate the market is interested in this mid-cap sector and we are determined to do more of this business. He said the investment bank was discussing with a "handful of mid-cap companies' fund-raising exercises through the convertible bond market. (b) Explain the differences in payoffs from actions (1), (ii) and (ii). (c) Discuss three reasons why firms use leasing as a way of financing Panva has issued 6% convertible bond, redeemable in five years. The face value of the