Business issue convertible bonds as an option totally free cash for a while, the advantages are not big, however the monetary engineering results in benefits for investors and the owner of the bonds has unrestricted upside if the stock goes up, while his drawback is safeguarded, excluding bankruptcy.
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Top content as usual. Grazie Sven ๐
What was your opinion? For a person who wants to invest in JD and Alibaba, buying stuck is better or their bonds?
Thank you Sven
Thx Mr Carlin, appreciated ๐
Thank you Sven, good content ๐
Sven…. you can block the value with otpions, right? Sell puts at 33$ and buy puts at 45$?!
Thank you for explaining!
Learned something new again. thanks!
Thank you Sven. Financial engineering is good in this case but it still does not answer my question on why they are doing this and not using their excess cash in their balance sheet to buyback stock? Why not, as Buffet said, buyback your stock at low levels without having to pay an interest (even though it is small interest expense)?
Because not all cash baba has can be used for buybacks. Regulation thing from China. They are doing 20bn a year in buybacks rn tho so thats plenty. But they can’t do much more.
It has to do with the money they can use that is parked outside of china to do the buybacks of the ADRs. Most of the cash is parked in china in chinese currency and comes from china operations. But if they want to buy the ADRs they need to use cash reserves (USD) from outside of china due to capital constrains imposed by regulation if I undestand correctly.
@@luigigetsu yes, it in one of their reports. I believe 38 bn of their cash can’t be used to buybacks bc its restricted to China investments.
thanks for the explanation Sven
Like a five year call option that doesnโt expire worthless. Sounds like a good deal.
One thing not mentioned: BABA and other Chinese companies can’t use all their onshore cash to do buybacks offshore (ADS). The reason for this are regulations in China. The CFO mentioned this in their last earnings call. So they issue the bond offshore to get dollars that they can then use to do the offshore buybacks or pay dividends.
Thanks for explaining the convertible bonds. Now I will just buy the stock at this low price instead.
Thank you Sven! Great explanation. Sounds like a great play by JD and Alibaba
Thank you for this Sven. I learned something today.
Could you do a follow up discussing convertible bonds versus standard rights issue (see National Grid recently)
Could we get your thoughts on 3M? There was a spinoff, dividend was also cut to less than half, which is diaproportionate to the earnings of the health segment they spun off, current stock price is higher than before the spinoff, all in all confusing situation to me at least.
Please Sven, you could have done better at explaining how these work. I get the idea, it’s free money, but would have been nice if you explained in simple terms of the capped call works.
Coco’s most certainly have their logic for their buyers and the issuing company. But what about the common shareholder? Coco is always a sign that the value of the company isn’t for the holder of commons. And issuing of coco usually results in considerable selloff.
Do you think Chinese ADR stocks are safe in the UK?