13. [Exchangeable debt] In May 2000. Munich Re [MUV2] 15- sued 1.15 billion of exchangeable notes due in 2005 Investors received an interest rate of 1% and the right to receive shares of Allianz instead of cash at maturity. The initial conversion pre- mium was 28%. The Financial Times reported that. Last month, the German re-insurer Munich Re divested it- self of part of its holding of.. Allianz.... But it did not do so by selling its shares in Allianz. Instead, it issued 1.15 billion of convertible bonds that investors will later be able to exchange for Allianz shares. The issue could save Munich Re millions. If it had simply sold the Allianz shares now it would have at- tracted capital gains tax of as much as 50% This way the issuer will not be taxed until the bonas are exchanged. by which une things may have changed German companies are hoping that new legislation will slash capital gains tax to zero by the end of next year Describe the advantages and disadvantages to Munich Re of issuing these notes rather than (i) Selling shares of Allianz (ii) Issuing bonds without the exchange feature Your answer should address the effect on interest expense as well as the capital gains tax considerations