What is convertible debenture financing?
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.
What is optionally fully convertible debentures?
Definition: Optionally convertible debentures are debt securities which allow an issuer to raise capital and in return the issuer pays interest to the investor till the maturity.
What is the characteristics of fully convertible debentures?
Types of Convertible Debentures
| Parameters | Fully Convertible Debentures |
|---|---|
| Definition | The value of these convertible debentures can be changed into the company’s equity shares. |
| Capital base | Their conversion leads to higher equity capital. |
| Flexibility in terms of financing | They have a highly favourable debt-equity ratio. |
How do you value a convertible debenture?
Value of convertible bond = independent value of straight bond + independent value of conversion option.
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.
Is convertible debt considered equity?
A convertible is a bond, preferred share, or another financial instrument that can be converted by the shareholder into common stock. Convertible securities are not classified as debt or equity; instead, they are considered to be a hybrid of the two categories, possessing cash flow features of both bonds and stocks.
Can a company issue fully convertible debentures?
A fully convertible debenture (FCD) is a type of debt security in which the entire value is convertible into equity shares at the issuer’s notice. The main difference between FCDs and most other convertible debentures is that the issuing company can force conversion into equity.
Can convertible debentures be listed?
It is to be noted that the debentures whether secured or not, shall be listed on the recognised stock exchange. Also, as per Schedule-I of SEBI (Issue and Listing of Debt Securities) Regulation, 2008, the company is required to provide disclosure for the creation of charge, along with the Listing application.
What are the advantages of a debenture?
The use of debentures can encourage long-term funding to grow a business. It is also cost-effective when compared with other forms of lending. Debentures usually provide a fixed rate of interest for the lender, and this has to be paid before any dividends are issued to shareholders.
What is convertible financial instrument?
Why would a company issue convertible debt?
Who has authority to issue debentures?
According to Section 2(30) of the Companies Act 2013, the company has the authority to issue bonds or debentures, which are debt instruments that can be both secured and unsecured by establishing a fee on the company’s assets.