Listed firms to get dual benefits from convertible bonds

Listed firms to get dual benefits from convertible bonds

Since the beginning of the year, numerous listed companies have rushed to issue convertible bonds primarily to restructure their debts.

Apartment projects developed by Novaland in HCM City. — VNA/VNS Photo

Convertible bonds are emerging as a hybrid financing solution for many Vietnamese companies under pressure to manage their debt. 

This financial instrument combines the features of debt and equity, allowing investors to convert their bonds into shares, thereby offering them dual benefits.

Since the beginning of the year, numerous listed companies have rushed to issue convertible bonds primarily to restructure their debts. 

For instance, Hodeco (HDC) recently announced plans to issue nearly five million convertible bonds worth approximately VNĐ500 billion (US$19 million). These bonds will be offered to existing shareholders and are mandatory for conversion into common shares in tranches, rather than repaying the principal.

As of the end of the second quarter, Hodeco's debt stood at VNĐ1.43 trillion, accounting for 61 per cent of its equity. 

The mandatory conversion clause is particularly significant given Hodeco’s stock price has surged nearly 90 per cent between April and mid-August, reaching its highest point in nearly two years.

Similarly, Novaland has proposed issuing around 320 million shares, equivalent to 16.4 per cent of its outstanding stock, to swap for over VNĐ8.7 trillion in debt. 

This restructuring move is expected to ease financial pressure while improving the company’s balance sheet.

TCO Holdings recently issued VNĐ260 billion in private convertible bonds with a one-year term and a 9 per cent annual interest rate, aimed at repaying personal loans for the acquisition of the Enterprise Tower, due in mid-2026.

Ho Chi Minh City Infrastructure Investment SJC raised VNĐ2 trillion through 20 million bonds from the CII425001 series, which will be converted into common shares over a 10-year term. 

The conversion will occur in nine tranches starting January 25, 2027, with a conversion ratio of 1:8 and a price of VNĐ12,500 per share, nearly 20 per cent below the current market rate.

CII is notably active in the convertible bond market, with plans to issue two more packages in 2025, totalling up to VNĐ4.5 trillion. 

Meanwhile, Hai An Transport and Stevedoring JSC recently converted 203 bonds from the HAH42401 series into 8.55 million shares, increasing its total outstanding shares from 121.34 million to 129.89 million and raising its charter capital to nearly VNĐ1.3 trillion.

Market dynamics and risks

Convertible bonds provide companies with short-term capital while allowing them the option to convert this debt into equity, thus reducing repayment pressures. 

This strategy is increasingly seen as a lifebuoy for firms facing debt repayment challenges.

For investors, convertible bonds present a unique opportunity. If the stock price rises, investors can convert their bonds into shares to capitalise on the appreciation. If the stock price does not perform well, they still have the option to retain the bonds and receive the promised interest payments.

Recent examples underscore the potential rewards. Ho Chi Minh Infrastructure Investment issued VNĐ2.8 trillion in convertible bonds early in 2024, with a conversion price significantly lower than the market price at the time. 

As a result, over 80 per cent of these bonds were converted into shares, yielding substantial returns for investors.

Despite the advantages, convertible bonds also come with risks. If a company’s stock performs poorly post-conversion, investors could face volatility and losses. Moreover, the issuance of a large number of new shares may dilute the value for existing shareholders, leading to further market pressure.

For instance, after Ho Chi Minh Infrastructure Investment converted a significant portion of its bonds into shares, its stock price fell from VNĐ18,000 to around VNĐ14,000 due to increased supply in the market. 

Bizhub