Convertible bonds 9 / 13

Convertible bonds

give the holders the right (but not an obligation) to convert their bonds at a specified future date into new equity shares of the company at a conversion rate that is also specified when the bonds are issued.

If bondholders choose not to convert their bonds into shares, the bonds will be redeemed at maturity, usually at par.

Convertible bonds issued at par normally have a lower coupon rate of interest than conventional fixed return bonds because the convertible bondholders have the potential additional benefit of the value of the shares on conversion being higher than the redemption value of the bond.

This is a key reason why the issue of convertible bonds is attractive to a company.