Loading the context…
Loading the context…
Bonds that can be converted into shares under specified contractual conditions.
The agreement determines the conversion price or formula, timing and who may initiate conversion. A fixed conversion price establishes how many shares a stated principal amount buys. Conversion can reduce debt but increase the shares outstanding, diluting existing owners' percentage interests. Some agreements use variable formulas or compulsory conversion, so the word “convertible” alone does not establish the investor's choices.
Imagine a J$1 million bond convertible at J$50 per share. Its fixed terms would produce 20,000 shares on conversion. If shares trade at J$60, those shares have a market value of J$1.2 million, before fees and other terms. At J$40 they are worth J$800,000. The holder's decision also depends on coupon payments, repayment risk, timing and any issuer call rights.
ECB survey finds easier wholesale credit terms, with financing costs mixed