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Valuing Compulsorily Convertible Debentures: Example

The document discusses the valuation of compulsorily convertible debentures (CCDs) using an example. It provides the issue price, par value, conversion price, interest rate, redemption terms and expected returns to calculate the value to the investor and cost to the issuer. The CCDs issued at Rs. 500 per debenture provide an overall return of 10.2% to the investor. For the issuer, the cost of issuing the CCDs works out to 7.6% per annum.

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816 views3 pages

Valuing Compulsorily Convertible Debentures: Example

The document discusses the valuation of compulsorily convertible debentures (CCDs) using an example. It provides the issue price, par value, conversion price, interest rate, redemption terms and expected returns to calculate the value to the investor and cost to the issuer. The CCDs issued at Rs. 500 per debenture provide an overall return of 10.2% to the investor. For the issuer, the cost of issuing the CCDs works out to 7.6% per annum.

Uploaded by

PRITEE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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VALUING COMPULSORILY CONVERTIBLE DEBENTURES

 Example
 Issue price of CCD – Rs. 500
 Par value of CCD – Rs. 500
 Issue date – 1 Jan 2014
 Convertible portion
 50% of the par value convertible
 Conversion date – 1 Jul 2015

 Conversion price – Rs. 25 per share (CMP – Rs. 22.5 per share)
 Conversion ratio – 10:1

 Interest rate – 8% p.a. payable semi-annually


 Non-convertible portion to be redeemed in two equal instalments at the end of 4 and 5 years.
 Expected return on debt – 10%
 Expected return on equity – 15%
 Tax rate – 30%
CF2, PGP1, TERM 3, IIMU 1
VALUING COMPULSORILY CONVERTIBLE DEBENTURES

COMPULSORILY CONVERTIBLE DEBENTURES EXAMPLE - VALUE TO INVESTOR


Rs
Interest Redemption Equity shares Total

Value to investor 99 163 225 487


Discount rate/ Rate of return 10.0% 10.0% 15.0% 10.2%
01-Jan-14 - - - (500.00)
30-Jun-14 20.00 - - 20.00
31-Dec-14 20.00 - - 20.00
30-Jun-15 20.00 - 277.21 297.21
31-Dec-15 10.00 - - 10.00
30-Jun-16 10.00 - - 10.00
31-Dec-16 10.00 - - 10.00
30-Jun-17 10.00 - - 10.00
31-Dec-17 10.00 125.00 - 135.00
30-Jun-18 5.00 - - 5.00
31-Dec-18 5.00 125.00 - 130.00
CF2, PGP1, TERM 3, IIMU 2
VALUING COMPULSORILY CONVERTIBLE DEBENTURES
COMPULSORILY CONVERTIBLE DEBENTURES EXAMPLE - COST TO ISSUER
Rs
Interest (post- Redemption Equity shares Total
tax)
Cost to issuer 7.6%
01-Jan-14 - - - 500.00
30-Jun-14 (14.00) - - (14.00)
31-Dec-14 (14.00) - - (14.00)
30-Jun-15 (14.00) - (277.21) (291.21)
31-Dec-15 (7.00) - - (7.00)
30-Jun-16 (7.00) - - (7.00)
31-Dec-16 (7.00) - - (7.00)
30-Jun-17 (7.00) - - (7.00)
31-Dec-17 (7.00) (125.00) - (132.00)
30-Jun-18 (3.50) - - (3.50)
31-Dec-18 (3.50) (125.00) - (128.50)
CF2, PGP1, TERM 3, IIMU 3

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