SHB Introduction
Vietnam’s Saigon Hanoi Bank (SHB) is a smallish bank mostly active in the North of Vietnam. It is currently listed on Ha Noi Stock Exchange and traded at 2.1 times par value i.e. 21,400 VND/share (4 Feb 2010).
Like all other banks its size, growth has been good for SHB except the
year 2008. Early this year, in order to meet the chartered capital requirements set by the Vietnamese Central Bank, SHB decided to sell convertible bonds to raise 150,000,000 SGD from the market.
Information on the issue of convertible bonds
The par value of the bond is 100,000 VND each and will yield an interest of
10.48% for 1 year. Thereafter, it will be converted to 10 shares of the
common stock in 1 year.
Existing shareholders will get to buy 1 bond for every 20 shares
at the 100,000 VND par value.
Most interestingly, outside investors who have no investment in SHB common stock will also get to buy SHB convertible bonds at 125,000 VND/bond.
I feel that at the price of 125,000 VND/bond, it is a very attractive bargain for outside investors because of the following reasons:
1. A 50% discount to current market price
Outside investor is effectively paying only 12,500 VND per share of SHB while at the moment SHB is traded at 21,400 VND on HaNoi stock exchange.
*1 bond costs 125,000 VND.
*After 1 year, one bond will be converted into 10 shares.
*So each share costs 12,500 VND
1 SGD~ 12,000 VND.
2. Earning the interest
In addition, outside investor will get a interest yield of 8.3% for 1 year (based on price of 125,000 VND/bond) whereas the shareholders get almost nothing from the company as it pays little to no share dividends.
After conversion, the price of 12.500 VND should still be about the diluted book value of the bank in 1 years’ time. I feel that paying 1x book for a growing bank will look quite cheap in the longer term as Vietnam’s economy continues to grow.
So whats about the risk?
The risk is of course that the price of the common stock may fall below 12,500 VND per share. But the margin of safety is big enough.
Other risk will be that the bond may likely be illiquid prior to conversion
in 1 year’s time.
At the very least, it must be more attractive than the common stock as the
stock yields nothing.
At present, the Vietnamese market does not allow market participants to short sell shares or this situation would be an ideal arbitrage situation. However, based on the margin of safety involved, the bonds seem to offer a good risk adjusted opportunity.
The translated information on the bond released by Saigon Hanoi Bank
