Conversion value: Only when the stock price rises until the conversion value of bonds is greater than the theoretical value of bonds, investors will exercise the conversion right.
Market price: when market price = theoretical price (conversion parity); When the market price >; Theoretical price (discounted premium); When the market price
(1) theoretical value. The theoretical value of convertible securities refers to its value as a security without convertible options. To estimate the theoretical value of convertible securities, we must first estimate the necessary rate of return of non-convertible securities with the same credit status and similar investment characteristics, and then use this necessary rate of return to calculate the present value of their future cash flows. We can refer to the bond valuation in the first section of this chapter.
(2) conversion value. If convertible securities can be transferred immediately, the product of the market value of convertible common shares and the conversion ratio is the conversion value, that is,
Conversion value = common stock market value × conversion ratio
Among them, the conversion ratio is the number of convertible shares of each bond obtained by the creditor. The market price of convertible bonds must be higher than its theoretical value and conversion value. If the price is lower than the theoretical value, the price of securities is undervalued, which is obvious; If the price of convertible securities is lower than the conversion value, it is profitable to buy the securities and immediately convert them into stocks, so that the price of securities will rise until it is higher than the conversion value. In order to better understand this, we introduce the concept of transformational parity.
(1) conversion parity.
The conversion parity is the price per share at which the holders of convertible securities can convert bonds into common shares of the company during the conversion period, and the conversion price is generally not adjusted unless there are certain circumstances, such as offering new shares, allotment, share delivery, dividend distribution, share dilution and merger, and company merger. The conversion ratio mentioned above is essentially another expression of the conversion price.
Conversion parity = market price/conversion ratio of convertible securities
The conversion parity is a very useful figure, because once the actual stock market price rises to the conversion parity level, any further stock price rise will definitely increase the value of convertible securities. Therefore, the conversion parity can be regarded as a break-even point.
(2) Conversion between premium and discount.
Generally speaking, investors need to pay a conversion premium when buying convertible securities. The conversion premium per share is equal to the difference between the conversion parity of common stock and the current market price (also known as the benchmark share price), or the concession made by the holder of convertible securities when converting bonds into shares, which is usually expressed as a percentage of the current market price relative to the share price when subscribing for convertible securities (namely the benchmark winning share price). The formula is:
Conversion premium = (conversion parity-benchmark stock price) × conversion ratio
Conversion premium ratio = conversion premium/benchmark stock price
If the conversion parity is lower than the benchmark stock price, the difference between the benchmark stock price and the conversion parity is called conversion discount, and the formula is
Conversion discount = (benchmark stock price-conversion parity) × conversion ratio
Conversion discount rate = conversion discount/benchmark stock price
The appearance of conversion discount is related to the premium sales of convertible securities.
(3) the transition period.
Convertible securities have a certain conversion period, that is, securities holders have the right to convert their convertible securities into company shares within this period. The conversion period is usually from a few years after the issuance date to the debt maturity date.
[Example] A company's convertible bonds, with annual interest rate of 10.25%, will expire on February 1 day, 2000. Its conversion price is 30 yuan, and the benchmark stock price is 20 yuan. The bond price is 1200 yuan.
Conversion rate = 1200/30=40
Conversion water =(30-20)×40=400
Conversion premium ratio = 10/20=50%
Xinhuanet Hong Kong, July 12 (Reporter Lin Jianyang) On the evening of July 12, COSCO Real Estate submitted an announcement to the Hong Kong Stock Exchange, announcing its intention to conduct an international offering of convertible securities, with an estimated capital of 650 million US dollars. The company will also choose to raise the amount of funds raised to 900 million US dollars as appropriate.
According to the announcement, the initial conversion price of convertible securities is expected to be HK$ 6.85 per share, and 8% is expected to be distributed every year and once every six months. Ocean Land will launch convertible securities to institutional investors from now on.
The announcement also said that COSCO Real Estate plans to use the proceeds from the raised funds to provide funds for new and existing projects, including construction costs and land costs, and will also provide funds for general corporate purposes.
Ocean Land 12 closed at HK$ 5.94, up 0.34%.