HAG's Singapore Note Issue
(7 pages of text)
In May 2011, Hoang Anh Gia Lai (HAG), a leading real estate company in Vietnam, was going to issue US$90 million of 9.875 senior notes (a debt instrument) in Singapore, due 2016. The company estimated the net proceeds from this offering, after deducting underwriting discounts, commissions and other estimated expenses, to be approximately US$80.7 million. From the perspective of an analyst at a brokerage firm who was monitoring HAG, there were many questions of interest arising from the note issue. These included the cost of the debt and the reasons why HAG chose to raise the money in Singapore, and not in Vietnam. What was the cost at which HAG was borrowing through the Singapore note issue? Was HAG’s level of borrowing, after the note issue, exceeding the optimal level? What was the likelihood that HAG would be downgraded within a year from its B rating from Standard and Poor’s? How would the risk to HAG’s equity be affected as a result of the issue? Would HAG’s stock price decline? The brokerage firm analyst needed to decide whether her firm should offload its equity holding in the company.
This case can be taught in the financing module of a first-year MBA or master of finance course on financial management or corporate finance. It can also be taught in an international finance course in a module on the globalization of the cost of capital. It serves the following pedagogical objectives:
- Computation of “all-in” costs of borrowing using discounted cash flow techniques.
- Analysis of corporate motivations in emerging markets to seek funding in developed markets.
- Assessment of the role of credit ratings and their downgrades on the risks and costs of financing.
- Assessment of the link between borrowing decisions of firms and their stock prices.
Real Estate and Rental and Leasing
Vietnam, Large, 2011
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