How do you value compulsorily convertible debentures?
The compulsory convertible debenture’s ratio of conversion is decided by the issuer when the debenture is issued. The conversion ratio is the number of shares each debenture converts in to, and can be expressed per bond or on a per centum (per 100) basis.
Can compulsorily convertible debentures be redeemed?
Fully, partially and non-convertible debentures A partially convertible debenture is divided into two parts, compulsorily convertible debentures which are convertible into equity shares and the second being non-convertible debentures which are redeemed at the expiry of its tenure.
Can the CCDs be bought back?
Buyback of securities is another alternative, however, CCDs cannot be bought back. CCDs must be converted into the underlying equity shares to be bought back. the share premium can then be used for buy-back of the shares.
What are CCDs and Ocds?
Debentures are debt instruments. Broadly, the popular debenture instruments used by FPIs are of three kinds: Non-convertible debentures (NCD), Compulsorily Convertible Debentures (CCDs), and Optionally Convertible Debentures (OCD). NCDs are pure debt instruments.
Who can issue convertible debentures?
Typically, a convertible debenture is issued by a company and can be converted into equity shares eventually. Notably, the decision to convert debentures into equity shares lay with shareholders, and they are treated as the creditor or lender. Regardless, in some cases, issuers may possess the conversion rights.
What is convertible debentures answer in one sentence?
A convertible debenture is a type of long-term debt issued by a company that can be converted into shares of equity stock after a specified period. Convertible debentures are usually unsecured bonds or loans, often with no underlying collateral backing up the debt.
Why do companies issue convertible debentures?
Companies issue convertible bonds to lower the coupon rate on debt and to delay dilution. A bond’s conversion ratio determines how many shares an investor will get for it. Companies can force conversion of the bonds if the stock price is higher than if the bond were to be redeemed.
Are convertible bonds considered equity?
A convertible bond is a fixed-income corporate debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares. The conversion from the bond to stock can be done at certain times during the bond’s life and is usually at the discretion of the bondholder.
What are convertible debentures in one sentence?
What are the advantages of convertible debentures?
Convertible debentures are hybrid products that try to strike a balance between debt and equity. Investors gain the benefit of fixed interest payments while also having the option to convert the loan to equity if the company performs well, rising stock prices over time.
How are compulsorily convertible debentures used to raise capital?
One of the ways to raise capital is by issuing Compulsorily Convertible Debentures (‘ CCDs ’). CCDs, as the name suggests, are debentures which are to be compulsorily converted into equity after a certain time period. That is, CCDs are hybrid instruments, being debt at the time of issue along with a certainty to get converted into equity.
What’s the difference between a convertible debenture and a CCD?
The CCD is one form of the convertible debenture. The difference is that its owner must accept stock in the company when it matures rather than having the option of receiving stock or cash. A compulsory convertible debenture is a bond that must be converted into stock at its maturity date.
Why do companies have to convert debentures to shares?
For investors, it offers a return in interest and, later, ownership of shares in the company. Debenture holders have no rights to vote as shareholders until their debentures are converted into shares. For companies, the compulsory conversion of debentures to equity is a way to repay a debt without spending cash.
What is a debenture in the Companies Act of 2013?
Companies Act 2013: As per Sec 2 (30) of the Companies Act 2013 “debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not;
