The trade-off between the marketability and cost effectiveness of bond issues : the case of the 7.5% 2010 hotel San Antonio PLC bond issue

Abstract

The aim of the dissertation was to analyse the trade-off between the marketability and the cost effectiveness of bond issues. The dissertation was a case study of the 7 .5% 2010 Hotel San Antonio Plc bond which was issued on the 17th of April 2002 and floated on the Alternative Companies List on the Malta Stock Exchange. The determinants of bond marketability and bond cost-effectiveness were primarily the coupon rate and the maturity of the bond. The theoretical figures for each of these were established and compared with those of the 7.5% 2010 Hotel San Antonio Plc bond issue. The issue was also compared with other bond issues having a similar rating, bond issues in the same sector and bond issues having a similar duration. The purpose of the comparison was to determine whether the reward, in terms of risk premium, was sufficient when compared to these bonds. The results obtained showed how the 7.5% 2010 Hotel San Antonio Plc bond issue tilted to the cost-effectiveness side of the trade off to the expense of bon<l marketability. Despite this lack of marketability the bond issue was still sold and oversubscribed for by the public, with the major reasons being the increased liquidity of the market during the period of issue and the dearth of investment opportunities available to local investors.