Ril Case Study Tocd

The company’s leverage ratio is 28% - 72% of its assets are financed by common equity and the company was profitable in the last reporting period. The company should easily raise additional funds from creditors and a convertible debenture will be an appealing venture for creditors who would want to purchase stocks of the company in the future.

Convertible debt and debt with stock warrants differ in that: (1) if the market price of the stock increases sufficiently, the issuer can force conversion of convertible debt into common stock by calling the issue for redemption, but the issuer cannot force exercise of the warrants; (2) convertible debt may be essentially debt, whereas debt with stock warrants is debt with the additional right to acquire equity; and (3) the conversion option and the convertible debt are inseparable and, in the absence of separate transferability, do not have separate values established in the market; whereas debt with detachable stock warrants can be separated into debt and the right to purchase stock, each having separate values in the market.

o Cost of debt in this case is 12.5% though MCI can raise $ 100 million more with this option in comparison to option (a) above. Servicing this debt would be a significant drain on the cash flow. o Please see Exhibit 3. (c) $600 million Convertible offering @ 7.625% 20 year with conversion at 54 per share o Using this option MCI can raise $ 100 million more than option (b) at 4.88% lower rate of interest. It also gives MCI an option to convert it to equity once the stock price reaches 54 (it is currently 47). Based on previous convertible offerings (As per exhibit 6 of case, 1978, 1979, 1980, 1981 and 1982), MCI has been converting it to equity within 18 months because of its high growth. As higher growth is projected for the next few years (Exhibit 9 of case), MCI is expected to convert this $600 million offering to equity, thereby reducing its leverage. o This option allows to finance its current activities and match capital inflows with expected investment outlays in the near future. It also allows MCI the option to eliminate the cash flow drain from servicing the debt once the stock price increases. o As per Exhibit 3 attached here, this offering will provide capital to meet the external financing needs for 1983.

Question 5: Evaluate the Put-Warrant/Convertible Bond proposal. Does it solve Intel’s capital structure dilemma? What arguments might be made in favor of it?

Three interrogations were thus to answer. Should the company provide investors with classic bonds or give them the opportunity to convert them into equity? Should they structure the offer with a fixed or a floating coupon rate? And last but not least, where should they locate the operation?

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To improve their goodwill and reliability; To inflate the prices of shares that would lead to the possibly increase capital; Avoiding debt covenant restrictions as the lender’s agreement states a minimum limit of term loan of cash and unpledged receivables, working capital and net worth.

In 2006, Merrill Lynch became the lead book runner for a $5 billion convertible bond issue for MoGen, Inc. This was the single, largest convertible bond issuance in history and required a considerable amount of effort on the part of Merrill Lynch’s Equity Derivatives Group to convince MoGen’s management to choose Merrill Lynch over its competitors. The case is focused on Merrill Lynch’s choice of the conversion premium and coupon rate to propose to MoGen management. This pricing decision requires students understand the concept of valuing a convertible as the sum of a straight bond plus the conversion option. Valuing the conversion option as a call option requires the

The company is also left with no further debt obligations until the warrants are exercised. The benefits also extend to investors, since using warrants rather than common stock to raise funds provides investors with the security that their stake in the company remains unchanged due to the no dilution effect. The dilution effect reduces the value of each share as shares outstanding increase. Not a favourable outcome for investors nor shareholders of a company who’s shares would now be less valuable. Investors who purchased warrants are also able to invest further and realise additional profits in the event that the company’s positive performance indicated by the stock price exceed the strike price of the warrants

The advantage to choosing a convertible bond for financing is that "they provide issuers with ‘cheap' debt and allow them to sell equity at a premium over current value". Jen, Choi, Lee (1997).

Following the advent of the economic liberalization, HLL-TOMCO merger which became operative on April 1, 1993, was one of the most significant mergers in Indian corporate history. This merger had immense impact on the Indian corporate scenario.

Despite the weak financial performance of its wholly-owned subsidiary company-PHB, the government has demonstrated its strong support towards PHB. In June-16, PHB has successfully entered into a conditional agreement with Minister of Finance Inc’s 99.9% owned Govco Holdings Bhd for subscription of 1.25 billion new PHB’s redeemable convertible cumulative preference shares (RCCPS). The dividend rate for RCCPS is set at 4.0% per annum and PHP has the option to pay in cash or PHP shares at predetermined conversion rate. In addition, PHP is also given a long time

Public companies have increased scrutiny which may provide them better rates if they decide to issue debt as well

Moreover, since it is convertible preferred stock, it allows the investor to exchange preferred stock to common stock at a specific price and at the discretion of the shareholder. So,

From the earlier Debt + Equity article, you know there are two (legit) ways to arrange money for starting or expanding a company