What I learned from Doosan's controversy over
What I learned from Doosan's controversy over overseas bonds with underwriting rights (BW) is different from ordinary convertible bonds. Namu Wiki's explanation is as follows.
in the middle of an explanation
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"Most companies want to issue separate BWs, because major shareholders can buy new rights at relatively low prices and expand their stake at a small cost.[1]"
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The explanation in footnote [1] for this is A.
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[1] The big problem is that there were many malicious major shareholders who deliberately lowered prices by moving stock prices in the form of stock price manipulation, and later switched after raising stock prices, saying that the bad news was or was resolved. No, there are still many major shareholders who do this.
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.... The series of work done by Doosan is quite similar to this. It means that the company's stake increased by re-purchasing the stock price at a lower price by saying, "We did not disclose the refixing (adjustment of the exercise price) clause."
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1. Overview
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新株引受權附社債 / Bond with Warrant(BW)
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It is a type of complex financial product that combines debt and capital elements, and is a (附) bond with the right to buy new shares (underwriting rights, warrant). It refers to a corporate bond that can purchase a contracted number of new shares at a contracted price after the contracted period has elapsed. It is convenient to think of it as a bond + call option structure.
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When the creditor exercises the right to take over new shares, the issuer (debtor) must unconditionally sell a predetermined amount of stock at a predetermined price. Even if the stock market price has risen compared to the time of issuance, it must be sold at the agreed price. Of course, creditors do not buy new shares, so they only buy new shares when they feel it is profitable based on market conditions.
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Since it is basically a corporate bond, there are bonds separate from the right to take over new shares. Bonds, or the right to receive money, do not lapse even when the right to take over new shares is exercised, and exist until maturity. In other words, even if you buy new shares, you can get the money back.
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The interest rate is lower because there is the right to take over new shares. From the creditor's point of view, it has the advantage of being able to obtain market profits by purchasing stocks cheaply depending on the situation, and from the issuer's point of view, bonds can be issued at a lower interest. Before exercising the right to take over new shares, the right to claim repayment of bonds and the obligation to pay the price of issuing new shares can be offset and paid as a substitute.
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There is also a type that can be sold separately only by taking out the right to acquire new shares. This is called a separate type BW. On the contrary, the non-separable type BW is inseparable.
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Most companies want to issue separate BWs, because major shareholders can expand their stake at a low cost by purchasing new shareholdings at a relatively low price.[1]
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For this reason, major shareholders often use separate BWs expediently, and eventually, the revision of the Capital Markets Act in 2013 banned the issuance of separate BWs, but allowed them again in August 2015.
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2. Measurement
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Calculate using the equation. Basically, the value of an intact BW is the issuer. If you subtract the value of a pure bond with the same maturity and face value of the same interest rate from the issuer of the BW, you can see the value of the underwriting rights. However, if there is a redeemable premium option, you can calculate it using the guaranteed rate of return of the redeemable premium. By converting the conditions such as 1+a% repayment of the face value to the current value, the debt factor is increased accordingly, and the same amount is deducted from the capital factor (new stock acquisition right).
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3. subsequent measurement
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The value of the right to underwrite new shares is never touched. The liability factor is amortized the same as ordinary bonds. However, if a company repays its bonds early, the capital factor is removed. And the difference is recognized as profit or loss, taking into account the consideration at the time of early repayment.
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4. Comparison with convertible bonds
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When exercising the right to convert convert bonds, the company's capital increases by the amount of debt it has reduced. And if the creditor exercised the right to convert, the creditor's status before conversion disappears and changes to the position of shareholder. However, in the case of BW, the position of bondholders is maintained because it is the right to pay for the stock price set in advance.
Accounting, convertible bonds are incorporated into capital from debt after the exercise of rights, but there is a difference in that bonds with warrants remain indebted after the exercise of the rights.
For the story of Doosan's controversial overseas BW bonds, please visit the link below
https://m.mt.co.kr/renew/view.html?no=2024072609155670909&fbclid=IwY2xjawEUvcVleHRuA2FlbQIxMQABHYDUhPjJXYcjlQpSjUuJ5jquFMIjI5WaM1kO6mz-xSr6cn8Yqj0amNfL4Q_aem_4jQaVp5shjrVJKoQyDO4ow
https://namu.wiki/w/%EC%8B%A0%EC%A3%BC%EC%9D%B8%EC%88%98%EA%B6%8C%EB%B6%80%EC%82%AC%EC%B1%84