Corporate Finance Topic Bond Valuation Of A Business.pdf

TNH Hotels & Resorts Management and Investment Joint Stock Company’s bond valuation II.1.. Information about TNH Hotels & Resorts Management and Investment Joint Stock Company’s bond val

National Economics University School of Advanced Education Programs

Topic: Bond valuation of a business

Group 7

 Lại Anh Thư

 Đỗ Hồng Vy

 Lê Minh Tú

 Hoàng Đình Anh

 Hoàng Minh Đạo

Hanoi, Vietnam

Table of contents

I Overview of bond valuation:

I.1 Bond features

1.2 Bond valuation

II TNH Hotels & Resorts Management and Investment Joint Stock Company’s bond valuation

II.1 Information about TNH Hotels & Resorts Management and Investment Joint Stock Company’s bond valuation

II.2 Information about TNH HOTELS & RESORTS MANAGEMENT AND

INVESTMENT JOINT STOCK COMPANY’s bond

II.3 Price bond’s TNH Hotels & Resorts Management and Investment Joint Stock Company’s bond valuation

I Regulation about bonds in Vietnam

The general regulations for corporate bonds under Vietnamese law are included in the Law on Enterprises, the Law on Securities, Decree No 155/2020/ND-CP (Decree 155) and Decree No 153/2020/ND-CP (Decree 153), all effective since January 1, 2021

1 What is bond

Bond is a type of security that verifies the owner's lawful rights and interests in a portion

of the issuer's debt, according to Section 3, Article 4 of the Securities Law 2019

A bond is a certificate of obligation by the issuer to pay the bondholder for the face value of the bond, for a specified time and with a specified yield

2 Requirements to issue bonds:

Terms and conditions

Pursuant to Article 6 of Decree No 153/2020/ND-CP, bonds must satisfy the following basic conditions and terms:

 Term bonds: Decided by the issuer for each offering based on the business' capital needs

 Issuing volume: Decided by the issuer for each offering based on the enterprise's capital use needs

 Currency of bond issuance and payment: For bonds offered for sale in the domestic market, the currency of issuance, interest payment and bond principal are VND

 Bond face value: Bonds offered for sale in the domestic market, with par value of one hundred thousand (100,000) Vietnam Dong or a multiple of one hundred thousand (100,000) Vietnam Dong

 Bond form: Bonds are offered for sale by enterprises in the form of certificates, journal entries or electronic data

 Nominal bond interest rate: determined by one of the following methods: Fixed interest rate for the whole bond term; floating rate; or a combination of fixed and floating interest rates

 In case the nominal interest rate is a floating interest rate or a combination of fixed and floating interest rates, the issuer must specify the reference base for determining the nominal interest rate in the issuance plan and announce it information to investors buying bonds about the reference base used

 The issuer decides the nominal interest rate for each offering in accordance with its financial position and debt solvency Bond interest rates issued by credit institutions, in

addition to complying with the provisions of Decree No 153/2020/ND-CP, must be consistent with the regulations on interest rates of the State Bank of Vietnam

 Type of bond: Decided by the issuer in accordance with the law

 Method of payment of bond interest and principal: Decided by the issuer based on the demand for capital use and the practice of the issuing market to announce to investors before the bond offering

 Requirement to issuing bond

 For the offering of non-convertible bonds without warrants (excluding the offering of bonds by a securities company or a securities investment fund management company that

is not a public company), the enterprise must meet the following requirements:

a) It is a joint stock company, or a private limited company established and operating under Vietnamese law

b) Fully pay both principal and interest of issued bonds or fully pay due debts for 03 consecutive years before the bond issuance (if any); except for the case of bond offering to creditors being selected by financial institutions

c) Have to meet the financial safety ratios, the safety ratios in operations in accordance with specialized laws

d) there is an approved and approved bond issuance plan according to regulations e) have the financial statements of the year immediately preceding the year of issuance which are audited by a qualified auditing organization as prescribed in this Decree f) participants in the offering are professional securities investors in accordance with the securities law

 For the offering of non-convertible bonds without warrants by a securities company or a securities investment fund management company that is not a public company: the enterprise must satisfy the conditions specified in Point a a, point c, point d, point dd and point e, Clause 1 of this Article

 For the offering of convertible bonds or bonds with warrants, the issuing enterprise is a joint stock company Subjects participating in the offering are professional securities investors and strategic investors, in which the number of strategic investors must be less than 100 investors

 The bond buyer

The bond buyer is stated in chapter II section 1, article 8, clause 1

Clause 1 About bond buyers

a) For non-convertible bonds without warrants: bond buyers are professional securities investors

in accordance with the securities law

b) For convertible bonds and bonds with warrants: bond buyers are professional securities investors and strategic investors, in which the number of strategic investors must be less than

100 investors investment

c) The organization responsible for identifying professional securities investors and documents identifying professional securities investors shall comply with the provisions of the Decree detailing the implementation of several articles of the Law on Securities

3 Pricing principles

 For listed bond:

- Average quoted price on the trading system at the Stock Exchange of ordinary transactions at the latest trading day plus accumulated interest (if the quoted price does not include accumulated interest)

- In case there is no transaction more than two (02) weeks from the date of calculation, the maximum value of the following values:

+ Purchase price plus accumulated interest

+ Par value plus accumulated interest

+ The price is determined according to the internal method of the securities trading organization, including accumulated interest

- It means: Max (Purchase price plus accumulated interest, Par value plus accumulated interest, Price determined by internal method, including accumulated interest)

 For unlisted bonds:

- Is the largest of the following values:

+ List prices (if any) on quotation systems selected by securities trading organizations, plus accumulated interest

+ Purchase price plus accumulated interest

+ Par value plus accumulated interest

+ Price according to internal regulations of the securities trading organization, including accumulated interest

- It means: Max (List price (if any), Purchase price plus accumulated interest, Par value plus accumulated interest, Price determined by internal method, including accumulated interest)

II Bond valuation

Bond valuation is a technique for determining the theoretical fair value of a particular bond Bond valuation includes calculating the present value of a bond's future interest payments, also known as its cash flow, and the bond's value upon maturity, also known as its face value or par value Because a bond's par value and interest payments are fixed, an investor uses bond valuation to determine what rate of return is required for a bond investment to be worthwhile Bond value = Present value + Present value

of the coupons of the face amount

= C x1-1(1+r)tr + F(1+r)t

Where:

C= Coupon paid each period

F= Bond’s face value

r= Rate per period

t= Number of periods

III TNH Hotel Management and Investment Joint Stock Company’s bond

1 TNH Hotel Management and Investment Joint Stock Company

 TNH Hotel Management and Investment Joint Stock Company focuses on 02 main business segments including:

 Invest in convenient hotel chains (currently SOJO brand) and luxury hotels and resorts

 Providing hotel and resort operation services, including providing operation services for hotels invested by TNH and hotels of other investors, towards the franchise model

 In the current period, the Company is focusing on investing and developing the convenient hotel chain SOJO and plans to invest in high-class hotel and resort projects on the existing land bank

 Convenient hotel chain SOJO: Currently, TNH has put into operation 3 SOJO hotels in the last period of the year in Nam Dinh, Bac Giang and Thai Binh, and is expected to open 2 new hotels in 2021 in Hanoi and Ha Long At the same time, TNH also has a portfolio of

18 plots of land (including 5 hotels that have been operated and expected to operate) with

a total area of 36,452 m2 that the Company expects to build 18 hotels SOJO until the end

of 2022

 With many projects invested, operated, and leased by TNH Hotels & Resorts continuously established from 2015 up to now, TNH Hotels & Resorts is steadily moving towards the goal of becoming an investment and service provider company Leading hotel operation service in Vietnam

 Currently, the Company is also operating Lapochine Beach Resort in Hue

2 TNH Hotel Management and Investment Joint Stock Company’s bond

2.1 Bond Information

Company name: TNH Hotel Investment and Management Joint Stock Company

Release date: 11/08/2021

Due Date: 11/08/2022

Bond term: 12 months

Par value: 100,000,000 VND/bond

Total issued par value: 300 billion VND

Coupon: 10%/year

Interest payment period: every 6 months

Collateral: There is no collateral, but there is a commitment to pay principal and interest from a third party This commitment is secured by shares of Vietnam Maritime Commercial Joint Stock Bank (HOSE: MSB) and the collateral value is maintained at least 200% of the value of the secured obligation

Type of Bond: Privately issued, non-convertible, warrantless, unsecured bonds

Minimum registered trading volume: 01 Bond

Transaction fee: 0.02% of the total transfer value but not less than 200,000 VND (Two hundred thousand VND)/01 set of ownership transfer documents; and a maximum of 10,000,000 VND (Ten million VND) / 01 set of ownership transfer documents

2.2 Interest payment timelines

11/08/2022: Second interest payment date and maturity date

11/02/2022: First interest payment date

11/08/2021: Release date

2.3 In 2020, TNH Hotel Management and Investment Joint Stock Company has just announced the successful issuance of VND 1,000 billion of bonds with code TNH.SJ.2020.01 This bond lot

is non-convertible, unwarranted and unsecured and has a term of 7 years, maturing on August 31,

2027 The principal and interest of the bond are paid once a year on the last day of the interest payment period or on the last repayment date Issuing consulting organization is KB Securities Vietnam Joint Stock Company

3 TNH Hotel Management and Investment Joint Stock Company’s bond valuation

According to SSI, we have timeline for interest payment and cash flow of TNH HOTELS &

RESORTS MANAGEMENT AND INVESTMENT JOINT STOCK COMPANY’s bond

Timelines for interest payments and cash flow

Payment date Expected cash flow before tax (VND)

11/02/2022 5,041,096

11/08/2022 4,958,904

11/08/2022 100,000,000

Total 110,000,000

On 15/04/2022, TNH HOTELS & RESORTS MANAGEMENT AND INVESTMENT JOINT STOCK COMPANY’s bond was purchased with price: 102.149.182 VND

Face value: 100,000,000 VND

Coupon: 4,958,904 VND

Number of periods: 2 periods

With the information, we can calculate Yield to maturity:

Bond value = Present value + Present value

of the coupons of the face amount

= C x1-1(1+r)tr + F(1+r)t

102.149.182 = 4,958,904 ×1- 11+r2r+ 100,000,0001+r2

=> YTM = 3.82%

and Current yield = 4,958,904101,926,221 = 4.87 %

4 Glossary:

Term bonds:

+ Definition:

A term bond refers to a bond that matures on a single, specific date in the future At the time, the bond's face value (i.e., the principal amount) must be repaid to the bondholder The term of the bond is the amount of time between the bond's issuance and its maturity

+ Example:

Let's assume a company issues a million dollars’ worth of bonds in January 2020, all of which are set to mature on the same date two years later The investor can expect to receive repayment from these term bonds in January 2022

Issuing volume

+ Definition:

Issuing volume means the annual dollar volume of all general-purpose card purchases, cash advances, and balance transfers on cards issued by an issuer

Bond form:

+ Definition:

The bond form is a legal document and must be accepted by all parties to the agreement + Example:

Nominal bond interest rate:

+ Definition:

A nominal interest rate refers to the interest rate before taking inflation into account It is the interest rate quoted on bonds and loans

+ Example:

If you borrow $100 at a 6% interest rate, you can expect to pay $6 in interest without taking inflation into account

Convertible bond

+ Definition:

A convertible bond gives the holder the option to convert or exchange it for a predetermined number of shares in the issuing company When issued, they act just like regular corporate bonds, albeit with a slightly lower interest rate

+ Example:

Consider a Company XYZ bond with a $1,000 par value that is convertible into Company XYZ common stock It has a coupon of 6%, payable annually The bond's prospectus specifies a conversion ratio, which is the number of shares that the investor will receive if he chooses to convert In this example, Company XYZ's convertible bond has a conversion ratio of 20 The investor is effectively purchasing 20 shares of Stock XYZ for $50 per share ($1000 / 20 = $50)

Non-convertible bond

+ Definition:

Non-convertible bonds or debentures are a type of debenture that cannot be converted into equity shares or stocks, hence called non-convertible When investors purchase nonconvertible bonds, they agree to lend the company money for a specified time in return for a set interest payment + Example:

An investor could purchase a $10,000 bond at 10 percent for 10 years Each year, he would receive 10 percent of the bond value in the form of an interest payment, and at the end of the 10 years, he would receive his $10,000 investment back

Warrants

+ Definition:

In finance, a warrant is a security that entitles the holder to buy or sell stock, typically the stock

of the issuing company, at a fixed price called the exercise price

A warrant bond is a type of corporate bond which is sold along with a warrant which entitles its holder to buy shares in the issuing corporation at a predetermined exercise price

+ Example: