[Bond Strategy] Bond price metrics (face value / full price / clean price; coupon yield / yield to maturity), primary market issuance methods, bidding methods, bidding techniques, and comparison of issuance methods

Determining the final issue rate and price according to agreed-upon pricing and allocation methods is an iterative communication process between the underwriting syndicate and investors. 2. Public Tender The issue price and interest rate level are determined directly through competitive bidding by bidders. Bookbuilding Process Step 1: Pre-roadshow Phase The bookrunner conducts a pre-roadshow to conduct preliminary market sounding and communication with investors, helping potential investors understand the issuer’s creditworthiness. Based on market feedback gathered during the pre-roadshow, the issuer and bookrunner jointly determine the initial price range, taking into account prevailing market conditions and investor demand. Step 2: Roadshow Phase The bond issuer engages in deeper, one-on-one discussions with investors, while the bookrunner carries out bookbuilding activities under full supervision by an authorized notary agency. Step 3: Final Pricing and Allocation Phase Bookbuilding is a relatively lengthy process requiring continuous, in-depth communication among the issuer, lead underwriters, and investors to ultimately finalize the issue price. The National Association of Financial Market Institutional Investors (NAFMII) issued the "Guidelines for Bookbuilding Issuance of Non-Financial Enterprise Debt Financing Instruments," which regulates and supervises key aspects of the issuance process. Primary Market Tender Methods Dutch Auction (Single-Price Award) Price Tender: The lowest winning bid price—i.e., the price of the last bidder needed to fill the total issuance amount—becomes the uniform winning price for all successful bidders. Yield Tender: The highest winning yield—the yield of the last bidder required to fill the total issuance amount—becomes the uniform yield for all successful bidders; thus, all winners pay the same cost. American Auction (Multiple-Price Award) Price Tender: Each successful bidder pays its own submitted bid price—the final award price varies across bidders. Yield Tender: Each successful bidder’s awarded yield equals its own submitted yield at the respective bid level; therefore, each winner bears a different cost. Hybrid Auction (Widely used domestically) Price Tender: The weighted average winning price across all bids becomes the issue price of the bond. Bids with yields higher than or equal to this issue price are allocated at the issue price; bids with yields lower than the issue price are allocated at their respective bid prices. Yield Tender: The weighted average winning yield across all bids becomes the bond’s coupon rate. Bids with yields lower than or equal to this coupon rate are allocated at the coupon rate; bids with yields higher than the coupon rate are allocated at their respective bid yields. Primary Market Bidding Techniques Clarify Objectives: Quantity (Investment Demand) vs. Price (Trading Demand) • Investment demand — investors prioritize quantity (allocation size). • Trading demand — investors prioritize price (winning bid price). Different bidding methods and objectives require distinct strategies. Comparison of Primary Market Issuance Methods Bookbuilding is applicable to credit bond issuances (e.g., CP, SCP, MTN, corporate bonds).

Corporate Finance (8) — Interest Rates and Bond Valuation

Key Concepts and Skills -- Understand key features and types of bonds -- Understand the components of bond value and why bond values fluctuate -- Understand bond ratings and their implications -- Understand the impact of inflation on interest rates -- Understand the term structure of interest rates and factors affecting bond yields 8.1 Bonds and Bond Valuation 8.1.1 Bond Characteristics and Pricing A bond is a legally binding agreement between a borrower and a lender specifying: face value + coupon rate + method of interest payment (coupon) + maturity date. 8.1.2 Bond Value and Yield Yield to Maturity (YTM) is the market’s required rate of return on the bond—the discount rate that equates the present value of the bond’s future cash flows to zero (i.e., makes NPV = 0). Fundamental Valuation Principle: The value of a financial security = present value of its expected future cash flows. Thus, a bond’s intrinsic value is determined by the present value of its coupon payments and principal repayment. Interest rates and present value (e.g., bond price) move inversely. 8.1.3 Interest Rate Risk For bondholders, the risk arising from fluctuations in market interest rates is called interest rate risk. Its magnitude depends on how sensitive the bond’s price is to changes in interest rates. This sensitivity is determined by two factors: time to maturity and coupon rate. All else being equal, the longer the time to maturity, the greater the interest rate risk; the lower the coupon rate, the greater the interest rate risk. 8.1.4 Calculating Yield to Maturity Yield to maturity is the implied interest rate embedded in the bond’s current market price. Without a dedicated financial calculator, solving for YTM requires trial-and-error interpolation—similar to solving for r in annuity problems. With a financial calculator, input N, PV, PMT, and FV, paying special attention to sign conventions (PMT and FV must share the same sign, while PV must carry the opposite sign). Example: A 20-year bond with a 10% annual coupon, paid semiannually, $1,000 face value, currently trading at $1,197.93. Is this bond’s YTM higher or lower than 10%? What is the semiannual coupon payment? How many compounding periods are there? N = 40; PV = −1,197.93; PMT = 50; FV = 1,000; computed rate = 4% (Is this the YTM?) → YTM = 4% × 2 = 8%. Current Yield = Annual Coupon / Bond Price Yield to Maturity = Current Yield + Capital Gains Yield Current Yield = 100 / 1,197.93 = 0.0835 = 8.35%. Assuming constant YTM, the bond’s price one year later would be $1,193.68. Capital Gains Yield = (1,193.68 – 1,197.93) / 1,197.93 = −0.0035 = −0.35%. YTM = 8.35% − 0.35% = 8%, consistent with the earlier calculation (or directly computed per definition). 8.1.5 Bond Pricing Theory

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Solstice Advanced Materials Inc. Bond Profile: SOLD6178438 Coupon and Redemption

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