Example: Bank of East Asia(cont'dy Call feature Redemption at the On or after July 19, 1998, the Issuer may option of the redeem the bonds at any time in whole or in bondholders part at principal amount of each Bond together with accrued interest, if for each of 30 consecutive Trading Days, the last of which Trading Days is not less than five nor more than 30 days prior to the day upon which the notice of redemption is first published, the closing price of the Shares as quoted on the Hong Kong Stock Exchange shall have at least 130 percent of the Conversion Price in effect on such Trading Day Convertible bonds
Slide: 16 Call feature On or after July 19, 1998, the Issuer may redeem the Bonds at any time in whole or in part at principal amount of each Bond, together with accrued interest, if for each of 30 consecutive Trading Days, the last of which Trading Days is not less than five nor more than 30 days prior to the day upon which the notice of redemption is first published, the closing price of the Shares as quoted on the Hong Kong Stock Exchange shall have at least 130 percent of the Conversion Price in effect on such Trading Day. Redemption at the option of the bondholders Convertible bonds
Example: Bank of East Asia(cont'dy Soft call protection Parisian feature The closing price has to be above 130 percent of the conversion price on consecutive 30 trading days On the date of issuance of the notice of redemption(treated as day 0) the Issuer looks back 5 to 30 days(corresponds to [-30, -5 time interval)to check whether the history of the stock price path satisfies the Parisian constraint. That is, the last of the 30 trading days falls in [-30,- 5 time interval From Issuer's perspective, when the Parisian constraint has been satisfied, the Issuer has 5 to 30 days to make the decision on redemption or not Convertible bonds
Slide: 17 Soft call protection Parisian feature The closing price has to be above 130 percent of the conversion price on consecutive 30 trading days. • On the date of issuance of the notice of redemption (treated as day 0), the Issuer looks back 5 to 30 days (corresponds to [-30,-5] time interval) to check whether the history of the stock price path satisfies the Parisian constraint. That is, the last of the 30 trading days falls in [-30,-5] time interval. • From Issuer’s perspective, when the Parisian constraint has been satisfied, the Issuer has 5 to 30 days to make the decision on redemption or not. Convertible bonds
Put features Convertible bonds
Slide: 18 Put features Convertible bonds
Put feature o Allows the holder to sell back the bond to the issuer in return for a fixed sum. Usually, the put right lasts for a much shorter time period than the maturity date of the bond o The holder is compensated for the lesser amount of coupons received in case the equl portion of the convertible has low value Convertible bonds
Slide: 19 Allows the holder to sell back the bond to the issuer in return for a fixed sum. Usually, the put right lasts for a much shorter time period than the maturity date of the bond. The holder is compensated for the lesser amount of coupons received in case the equity portion of the convertible has low value. Convertible bonds
Put feature(cont'd oIt protects the holder against rising interest rates by effectively reducing the year to maturity. The convertible's price then becomes less sensitive to interest rate The put feature may shorten the maturity of the bond and thus effectively raises its investment value and lower the sensitivity to interest rate fluctuation Convertible bonds
Slide: 20 It protects the holder against rising interest rates by effectively reducing the year to maturity. The convertible’s price then becomes less sensitive to interest rate. The put feature may shorten the maturity of the bond and thus effectively raises its investment value and lower the sensitivity to interest rate fluctuation. Convertible bonds