On July 07, 2016, Ayala Corporation issued 10 billion bonds with a coupon rate of 3.92% per annum due 2023.
AC intends to fully redeem the bonds to their maturity on July 7, 2023. The bonds shall be redeemed by payment in cash of the redemption price set at 100% of the issue price plus all accrued and unpaid interest based on the coupon rate of 3.92% per annum.
Where is Ayala Corporation getting the funds for the redemption? AC reissued 5,244, 515 Preferred Class A shares at a price of 2,500 per share. The reissuance raised 13.1 billion for AC. What is the cost of that capital raising exercise? It is 6.3578% per annum. AC set the initial dividend rate of the reissued Preferred Class A shares at 6.3578%.
The cost of the Preferred Class A shares (6.3578%) issued is 1.62X the cost of the bond (3.92%) refinanced.
The increase in the cost of capital will surely impact AC’s valuation.
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