Revised calculation. Let me know if I am wrong: (1)GNSPA will pay 9.98% times $100 times 0.25 = $2.50 on 19 October based on record date 14 Oct. GNSPA are trading at $35. So that is 7.1% simple return or 31% per annum running yield (all things static). (2) If company survives, Gunns will "eventually" pay notes back and this will be at $100 so capital gain might be 300% but could be in 5 years (when interest rate is expensive relative to GNS other forms of borrowing). This capital gain is say 50% per annum. (3) However, if they convert to equity, conversion to shares is based on min price of 23.8 cents. So you get 420 Gunns shares per note. So at market price of 14 cents, that is worth $59. This gives a healthy $27 of profit to cushion the blow when share price falls post dilution to maybe 9 cents. At 9 cents, market cap is constant (same before and after conversion) and value recovered is $37.8 per note or per 420 shares.
So in all cases, buying GNSPA below $37, trade is profitable provided Gunns stays in business. If they get Gunns paper mill JV going, share price will actually go up.
GNS Price at posting:
14.0¢ Sentiment: LT Buy Disclosure: Held
