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Tesis Doctoral 2019

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Tesis Doctoral 2019 UNIVERSIDAD POLITÉCNICA DE MADRID ESCUELA TÉCNICA SUPERIOR DE INGENIEROS INDUSTRIALES Departamento de Ingeniería de Organización, Administración de Empresas y Estadística Los Instrumentos Obligatoriamente Convertibles como Fuente Eficiente de Capital TESIS DOCTORAL Angel Huerga González Ingeniero de Telecomunicación UPM Director Carlos Rodríguez Monroy Doctor Ingeniero Industrial Licenciado en Ciencias Económicas y Empresariales Licenciado en Derecho y Sociología 2019 1 Tribunal nombrado por el Magfco. y Excmo. Sr. Rector de la Universidad Politécnica de Madrid, el día de de 2019. Presidente: Vocal: Vocal: Vocal: Secretario: Suplente: Suplente: Realizado la lectura y el acto de defensa de la tesis el día de julio de 2019, en Madrid. Calificación: EL PRESIDENTE LOS VOCALES EL SECRETARIO 2 3 Acknowledgements I wish to take this opportunity to express my gratitude to my thesis supervisor, Prof. Carlos Rodriguez-Monroy, for the guidance, encouragement and advice he has provided to me. I have been lucky to have a supervisor who cared about my work, who responded to my questions promptly and who helped me through the lengthy process of the creation of this thesis. I must also express my gratitude to the professors and colleagues from the Escuela Superior de Ingenieros Industriales and from the Universidad Politécnica of Madrid and to the institution itself. Particularly, I want to thank professor Felipe Ruiz López who encouraged me to follow the path of the postgraduate studies and to the elaboration of a thesis in finance, and who helped me in many occasions; thanks to my colleague Manuel Uche that helped me through the thesis processes; thanks to professor Yilsy Nuñez, who provided me with inspiration and guidance about statistics; and thanks to Miguel Angel Pelaéz who always supported me. I would like to thank my work colleagues in BBVA, Credit Suisse and Barclays, for the inspiration they have provided to me. And I would like to thank all individuals and organizations who contributed with data, methods or with inspiration to this study. Finally, I would like to thank my parents and my family. Nobody has been more important to me in the pursuit of this project than my parents, whose love, patience, support and guidance are with me in whatever I pursue. Angel Huerga 4 5 General Index 1 Introduction ........................................................................................... 20 1.1 Objectives of the Thesis ........................................................................................... 20 1.2 Thesis Structure ...................................................................................................... 23 1.3 Main Contributions of the Thesis ........................................................................... 25 2 The History Mandatory Convertible Instruments ................................... 28 2.1 The Origins of Convertible Instruments ................................................................. 28 2.2The Rail Road Companies in the US and the First Convertible Bonds .................. 29 2.3 The Early Convertible Railroad Bonds. ................................................................... 31 2.3.1 The Marketing of Rail Road Convertible Bonds in the XIX Century .............. 33 2.4 The Expansion of the Convertible Securities in the XX Century in the US ........... 35 2.5 Convertible Bonds in Europe in the XX Century ................................................... 36 2.6 Convertible Preferred Shares ................................................................................. 37 2.7 Convertible Exchangeable Preferred Shares ...........................................................41 2.8 PERCS, ELKS, YIELDS, EYES and other Convertible Preferred Shares. The Origins of Modern Mandatory Convertibles ................................................................ 42 2.9 DECS. The First Modern Mandatory Convertible Bonds. ..................................... 45 3 Standard Convertible Bonds ................................................................... 51 3.1 Types of Convertible Instruments ........................................................................... 52 3.1.1 Convertible Bonds with European Conversion Option .................................... 52 3.1.2 Convertible Bonds with Soft Call Features. ...................................................... 53 3.1.3 Convertible Bonds with American Conversion Option .................................... 53 3.1.4 Exchangeable Bonds ......................................................................................... 53 3.1.5 Mandatory Convertible Bonds .......................................................................... 54 3.1.6 Contingent Convertibles (CoCos or AT1 bonds) .............................................. 55 3.1.7 Convertible Preferred Stocks ............................................................................ 56 3.1.8 Convertible Exchangeable Preferred Stocks .................................................... 56 3.1.9 Floating Priced Convertibles ............................................................................ 56 6 3.2 Early Empirical Studies about Convertible Bonds ................................................. 57 3.3 Market Reaction to the Issuance of Convertible Bonds ......................................... 58 3.4 Motivation for Convertible Bond Issuance ............................................................. 60 3.4.1 Asymmetry of Information, Agency Problem and Capital Supply in the Study of Convertible Bond Financing .................................................................................. 60 3.4.2 Theories about the Motivation for Convertible Bond Issuance ....................... 62 3.4.3 The Answers from Company Managers ........................................................... 66 3.5 Investors in Convertible Bonds ............................................................................... 68 3.6 Valuation of Standard Convertible Instruments .................................................... 72 3.7 Accounting of Convertible Instruments.................................................................. 75 3.8 Convertible Bonds as a Financing Alternative for Low Credit Rated Mid-Caps. The Case of Spain ................................................................................................................. 78 3.8.1 Recent Issuance of Convertible Bonds by European Companies .................... 79 3.9 Sustainable Finance Instruments ........................................................................... 84 3.9.1 Convertible Bonds as a Sustainable Financing Instrument ............................. 86 3.9.2 Sustainable Project as a Case of Sequential Financing .................................... 89 3.9.3 Case Study: Sumitomo Forestry. The First Sustainable Convertible Bond Issued ......................................................................................................................... 90 3.10 Are Convertible Bonds a Suitable Instrument for Sustainable Finance? ............. 92 4. Volatility Based Finance Instruments. Scrip Dividends. ......................... 95 4.1 Introduction to Scrip Dividends .............................................................................. 95 4.2 Size of the Scrip Dividend Market in Europe ......................................................... 96 4.3 Motivations for Scrip Dividend Distributions ........................................................ 97 4.4 Valuation of the Implicit Options Attached to Scrip Distributions ....................... 98 4.5 How to Reduce Dilution Linked to Scrip Dividends ............................................ 100 4.6 Share Repurchase Strategies with Volatility Instruments ....................................101 4.7 Accounting Impact of a Share Repurchase at a Lower Strike .............................. 102 4.8 Scrip Dividends and the Agency Problem ............................................................ 103 7 5. Mandatory Convertible Bonds as an Efficient Corporate Finance Instrument .............................................................................................. 106 5.1 Modern Mandatory Convertible Bonds ................................................................ 106 5.2 Introduction to Mandatory Convertible Bonds .................................................... 108 5.3 Review of the Academic Literature about Mandatory Convertibles ..................... 113 5.4 Market Size ............................................................................................................. 118 5.5 Mandatory Convertibles Price Model .................................................................... 121 5.5.1 Calculations of Embedded Options ................................................................ 128 5.6 Accounting for Mandatory Convertibles .............................................................. 129 5.7 Dataset and Methods ............................................................................................ 130 5.8 Data Analyses ........................................................................................................ 130 5.8.1 MCB Implicit Spread and MCB Implicit Yield ............................................... 130 5.8.2 Variables Study ................................................................................................ 131 5.8.3 Univariate Regressions .................................................................................. 134 5.8.4 Arbitrage
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