VALUATION AND

CHARACTERISTICS OF
BONDS
CAS, EUNICE KAYCCI D.
AC 203 TTH 10:30 - 12:00
FINANCIAL MARKETS
SM PRIME HOLDINGS, INC. is one
of the largest integrated property
developers in Southeast Asia and a
subsidiary of SM Investments
Corporation.

The company's main sources of revenues

primarily inlcude rental income form
mall and food courts, as well as from
cinema ticket sales and amusement
income.
SM PRIME HOLDINGS, INC.
In the year 2014, SMPH issued P60 billion bonds with maturity of 3, 5, 7 and
10 years. These issued bonds have series throughout the years. For example, the
Series “A” which was issued on year 2014 and maturity was five years after with
an interest rate of 5.1000%

Every year, SMPH issue bonds with different Series which included another
interest rate and maturity date. The latest SMPH issued bond was this year's
fourth and last tranche of the P60-billion shelf registration of fixed rate bonds
approved by the SEC last 2016. It was called Series “J”which will due in 2022.
SM Prime Holdings, Inc. or SMPH issued bonds
primarily because to finance capital expenditures for
the expansion of the Issuer’s commercial and
residential operations.
LAST MAY 2017, SMPH ISSUED
P15 BILLION WORTH OF
BONDS WITH
OVERSUBSCRIPTION OF P5
BILLION.

SMPH SERIES “G” WAS

OFFERED ON 2017 AND WILL
DUE ON YEAR 2024.
When SMPH offered/issued bonds, it was
rated AAA by PhilRatings which is the
highest rating.

The rating also has a stable outlook which

indicates that the rating is likely to be
maintained or to remain unchanged in the
next 12 months.

Obligations rated PRS Aaa are of the

highest quality with minimal credit risk. The
issuer’s capacity to meet its financial
commitment on the obligation is extremely
strong.
 SMPH Bond Quotes
BONDS CURRENT YIELD VOLUME CLOSE NET CHANGE

SMPH 5 21/125 24 13.2 13.7 39.05 +0.13

Determines the Investor's Periodic Cash Flow

Clash flow = Interest Payment = Coupon Rate x Par

= 5.168 x 1000 = P51. 68/year
 SMPH Bond Quotes
BONDS CURRENT YIELD VOLUME CLOSE NET CHANGE

SMPH 5 21/125 24 13.2 13.7 39.05 +0.13

YEAR OF MATURITY

Determine the time frame for the investment

24 = year 2024, therefore in 2017 this is a 7-year
investment
 BONDS CURRENT YIELD VOLUME CLOSE NET CHANGE

SMPH 5 21/125 24 13.2 13.7 39.05 +0.13

Current yield = Annual Coupon

Market Price

= 51.68
39.05

= 1.32 x 10
= 13.2 %
 BONDS CURRENT YIELD VOLUME CLOSE NET CHANGE

SMPH 5 21/125 24 13.2 13.7 39.05 +0.13

Expressed as a % of Par

Price = 39.05 x 10 = 390.5

 BOND VALUATION MODEL
BONDS CURRENT VOLUME CLOSE NET CHANGE
YIELD
SMPH 5 13.2 13.7 39.05 +0.13
21/125
SMPH BOND TIMELINE

Investor that purchases bond (2017) for P390.5 will receive 7

annual interest payments of P51.68 and a 1000 seven years.

2017 2018 2019 2020 2021 2022 2023 2024

0 1 2 3 4 5 6 7

51.68 51.68 51.68 51.68 51.68 51.68 51.58 51.68

1000
INTEREST RATE RISK
As interest rates in the economy change, required rates on
bonds will also change resulting in investor’s intrinsic values
changing and market prices changing.

When bonds are originally issued, the coupon rate is set to

match current prevailing rates. Over time, the prevailing rates
may change, but the coupon rate is fixed. Resulting in the actual
price of the bond changing.
 INTEREST RATE RISK
Intrisic Value
Purchase SMPH 7,24 Bond for P1000

Vb = 51.68(1/.08 - 1/.08 (1+.08)ˆ7)+ 1000/1+.08)ˆ7

= 51.68 (12.5 - 7.2936) + 583.49
= 51.68 (5.2064) + 583.49
= 852.56
YIELD TO MATURITY
Bondholder's Excpected Rate of
Return
If an investor purchases bond at YMT APPROXIMATION FORMULA
today's price and hold it until
maturity, what is the annual rate of
return that is earned?
YIELD TO MATURITY
YTM= 51.68 + 1000 - 390.5
7
1000 + 2 (390.5)
3
= 173. 58
593.67
= 0.2924 or 29.24%
EFFECTIVE RATE OF RETURN FOR
THE 7 YEARS
1,000 x 0.2924 = 292.4

292.4 x 7 = 2,046.8 (annual interest)

2,046.8 / 12 = 170.57 (monthly interest) FOR SEVEN
170.57 x 6 = 1,023.42 (semi-annual interest) YEARS
INVESTMENT
2,046.8 x 80%= 1,637.44 (interest payment
subject to 20% witholding tax)

1,000 + 1,637.44 =P 2, 637.44 NET INCOME

BONDHOLDER'S PERSPECTIVE IN
PURCHASING A BOND
A bond is a debt security, similar to an IOU. Borrowers issue bonds to raise money
from investors willing to lend them money for a certain amount of time.

When you buy a bond, you are lending to the issuer, which may be a government,
municipality, or corporation. In return, the issuer promises to pay you a specified
rate of interest during the life of the bond and to repay the principal, also known as
face value or par value of the bond, when it "matures," or comes due after a set
period of time.
Will I buy or invest that bond or not? If I will invest in
that bond, how much will I invest? Justify.
SM Prime Holdings, Inc., has a already a name and reputation in the business
world. As a consumer, I think of SMPH is that they will not grow and expand
that big if their strategy and goals aren't align.

So being an investor, I will invest P1000.00. And the expected rate would be
29.24% because I know that I would earn more than what I invested.
REFERENCES
• https://www.investor.gov/introduction-investing/basics/investment-products/bonds
• https://www.philstar.com/business/2019/03/08/1899525/sm-prime-holdings-inc-
sets-final-p10-billion-bond-offer
• https://www.pressreader.com/philippines/manila-
bulletin/20190311/281878709688169
• https://www.landbank.com/sites/default/files/basic/Corporate%20Securities-
Website20180327.pdf