A convertible instrument is rarely one thing for accounting purposes. It usually combines a debt host with a conversion option and, often, call, put, reset or ratchet features. HKFRS 9 requires these to be assessed, separated or measured at fair value – and someone has to produce a fair value the auditor will accept. Valtech Valuation provides independent convertible bond and preference share valuation in Hong Kong for both issuers and holders.
Instruments We Value
- Convertible bonds and convertible notes, listed and unlisted
- Convertible preference shares with liquidation preferences, participation and anti-dilution terms
- Fixed coupon notes (FCNs) and equity-linked structured notes
- Warrants, subscription rights and options over unlisted shares
- Embedded derivatives separated from a host contract
- Exchangeable bonds convertible into another entity's shares
- Shareholder and related-party loans requiring a market interest rate assessment
Our Valuation Method
Because a convertible's value depends on both credit risk and equity upside, a simple discounted cash flow understates it. Our usual approach is a binomial tree that models the share price forward, applies the conversion, call and put decisions at each node, and discounts cash-settled and share-settled components at the appropriate rates. Where terms are path-dependent – a conversion price reset based on an averaging period, a knock-in barrier or a conditional coupon – we use Monte Carlo simulation.
Key Inputs
- Underlying share price – market price for listed issuers, or a full equity valuation and waterfall allocation for unlisted ones
- Volatility – implied where a liquid option market exists, otherwise from a justified peer group
- Credit spread – from the issuer's own traded debt, comparable-rated issuances or a synthetic rating, reassessed at each measurement date
- Risk-free curve matched to the instrument's currency and tenor
- Dividend assumptions and contractual adjustments to the conversion terms
Classification Comes First
Whether a preference share is equity, a liability or a compound instrument depends on its terms – mandatory redemption, cumulative dividends, holder put rights and conversion mechanics. We flag the classification question at scoping, because it determines what has to be measured. We also identify day-one gains or losses on instruments issued to related parties or on off-market terms, and set up a repeatable process for clients who must mark instruments every reporting period.
Frequently Asked Questions
Do we need to separate the embedded conversion option?
It depends on the terms and your classification. Many issuers instead designate the whole instrument at fair value through profit or loss. Either route requires a fair value.
How do you set the credit spread for a private company?
From observable evidence – the issuer's recent arm's-length borrowings, traded debt of comparable issuers, or a synthetic rating from financial ratios. The derivation is set out in the report.
Can you value instruments we hold as an investor?
Yes. Funds, family offices and corporates engage us to mark convertibles and preference shares, including for quarterly NAV reporting.
Why Hong Kong Companies Choose Valtech
Complex instrument valuations are reviewed by auditors, fund administrators, regulators and often overseas investors. They need a team whose qualifications and modelling every reviewer will respect.
- A strong team with outstanding international credentials – CPA, CFA, FRM, MRICS, ABV (AICPA) and China Certified Public Valuer qualifications gained in Hong Kong, the United States, the United Kingdom and Mainland China. When your valuation is scrutinised by authorities, auditors and international stakeholders, these credentials carry weight.
- Senior members closely monitor every valuation – the director who builds your model answers your auditor's questions and signs the report. Your concerns are addressed by an experienced professional, not passed down the line.
- Quantitative depth in-house – binomial, trinomial and Monte Carlo models are built and reviewed by CFA- and FRM-qualified professionals.
- ISO 9001 certified quality management – defined review steps before release, with auditor queries handled within the engagement.
- Proven track record – more than 1,000 valuations and 18 years serving Hong Kong companies and funds.
Request a Convertible Bond Valuation Quotation
Send us the term sheet or subscription agreement and your valuation date. A director-level valuer will reply with scope, fee and turnaround. Call +852 2388 9262 or email admin@valtech-valuation.com.
More detail: Convertible bond & preference share valuation – Valtech Hong Kong
Valtech Valuation Advisory Ltd, Unit 2106, 21/F, Futura Plaza, 111-113 How Ming Street, Kwun Tong, Kowloon, Hong Kong. This article is general information, not valuation, accounting, tax or legal advice for any specific entity.