Case study
Golden Telecom
Evaluating a Convertible Bond Financing

Prof. Ian Giddy, New York University

Golden Telecom, Inc., together with its subsidiaries, provides integrated telecommunications and Internet services throughout Russia and other countries of the Commonwealth of Independent States (CIS). It offers competitive local exchange carrier services using its overlay network in Moscow, Kiev, St. Petersburg, Nizhny Novgorod, Samara, Kaliningrad, and Krasnoyarsk; data and long-distance services using a fiber optic and satellite-based network, including approximately 200 combined access points in Russia and CIS; dedicated and dial-up Internet access to businesses and consumers; Internet content through various Web brands powered by its ROL portal; and mobile services. The company offers these services to corporate network customers, corporate end-users, small and medium enterprises, fixed-line operators, cellular operators, and the mass market. The company was incorporated in 1999 and has its principal executive office in Moscow, Russia. In 2002 Golden listed its shares in the NASDAQ market in the USA.

In June 2005, Golden (GLDN) was considering issuing $200 million of a 2.25% 5-year convertible bond. The bonds would be issued at par with a face value of $1000. Each bond would be convertible into 30 shares.Golden’s rating was BB-, and the shares had an annual volatility of about 25%. The company paid $0.80/share dividends. The underwriting fees were estimated at 2%.


1. What is the conversion premium?
2. What is the straight bond component worth?
3. Can you determine whether this gives the company a low effective cost of funding?

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