A convertible debenture is a type of unsecured long-term convertible debt issued by a company, meaning that it contains a stock conversion option. Investors earn fixed interest payments while the bond is active, and also having the option to convert it into equity if the stock price rises over time.
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 a convertible debenture be converted into equity?
Conversion Price. Convertible Debentures are those which can be converted into equity shares at the option of the holder. The most significant feature of issuing these debentures is that it gives a fixed income to the holder along with a chance of having equity shares if the holder exercises his conversion option to the company as capital gains.
What happens when debentures are converted into shares?
The debenture-holders are converted into equity shareholders and will get dividend like other equity shareholders instead of interest they got earlier. Convertible Securities always include a call feature whereby the issuer, at his option, can call the issue for redemption.
How is the face value of a convertible debenture calculated?
For example, the company might distribute 10 shares of stock for each debenture with a face value of $1,000, which is a 10:1 conversion ratio. The convertible debt feature is factored into the calculation of the diluted per-share metrics of the stock.
How are Convertible Bondholders paid in a liquidation?
Convertible bondholders are paid before stockholders in the event of a company’s liquidation. Investors receive a lower interest rate compared to traditional bonds in exchange for the option to convert to stock. Investors could lose money if the stock price declines following the conversion from a bond to equity.
