Mick, The terms are confusing. But...
I think we can agree that GEMS will only do what makes them the most money.
Except under certain conditions, GEMS will decide whether or not they will convert their debt into shares. As you highlighted:
if the outstanding Notes are not exchanged into Class A Shares of Sino-Forest on the maturity date, interest on the Notes for the five-year period will be calculated at the rate of 15% per annum
So, we can assume that GEMS will only voluntarily convert if the return by doing so is higher than an annual compounded 15%.
If the stock hits 1.73, why would they convert? They would be giving up the 15% annual for 5% annual plus whatever return that .01 would give them, which wouldn't be much. They would only convert if the combined return (the 5% compounded plus the return on the conversion) would be more than 15% compounded.
But you might be thinking that TRE can force the debt holders to convert. True, but only if the shares are trading at
2.0 times the Exchange Price then in effect.
In other words, TRE can "force" them to accept a 100% return (plus, let's not forget, the 5% compounded that they've already received). That would be quite the hardship for the debt holders.
So, I don't see how they would ever get less than the 15% compounded, unless, of course, TRE goes bankrupt.
Please let me know your comments on this interpretation or correct me, if I've made any mistakes in my thinking here.
Mike |
