debenture

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tinkesh kumar

tinkesh kumar (Querist)
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23 January 2011 what is convertible debentures

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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23 January 2011 A type of loan issued by a company that can be converted into stock by the holder and, under certain circumstances, the issuer of the bond. By adding the convertibility option the issuer pays a lower interest rate on the loan compared to if there was no option to convert. These instruments are used by companies to obtain the capital they need to grow or maintain the business.

Convertible debentures are different from convertible bonds because debentures are unsecured; in the event of bankruptcy the debentures would be paid after other fixed income holders. The convertible feature is factored into the calculation of the diluted per-share metrics as if the debentures had been converted. Therefore, a higher share count reduces metrics such as earnings per share, which is referred to as dilution.

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CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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23 January 2011 A Convertible Debenture is a type of Debenture or commercial loan that gives the choice to the lender to take stock or shares in the company, as an alternative to taking the repayment of a loan.

Usually, Convertible Debenture is any form of Debenture which can be converted into some other kind of security. Convertible Debentures can be converted into shares or Common Stocks.
The Convertible Debenture's market price should not fall below its intrinsic value (book value or asset-based value). The intrinsic value is calculated by multiplying the number of shares converted at face value with the current market price of common stock.
Usually, Convertible Debentures offer more safety to the investor compared to Common Shares or Preference Shares.

In the case of Convertible Debentures, Short Selling can be done, and by short selling, the market value of a stock comes down. This lets the Convertible Debentureholder make a claim for additional stocks with the help of more Short Selling. This is termed as death spiral financing.

Convertible Debentures are suitable for investors who look for potential increases in asset value (appreciation) compared to that yielded by Bonds, and more earnings than Common Stocks provide.

In this era of Online communication, it is possible to obtain large amounts of information regarding Convertible Debentures. Before initiating any substantial investment, it is prudent to seek suggestions of the financial experts who have a deep knowledge of Convertible Debentures. Before conversion of Convertible Debentures into Common Stocks or shares, it is prudent to have clear insight related to the potential changes in earnings and the relative gains.

Convertible Debentures can usually be categorized into the following types:
Secured Convertible Debentures
Convertible Senior Debentures
Unsecured Convertible Debentures
Subordinated Convertible Debentures
Senior Secured Convertible Debentures

Convertible Debentures are suitable for investors who look for potential increases in asset value (appreciation) compared to that yielded by Bonds, and more earnings than Common Stocks provide.

In this era of Online communication, it is possible to obtain large amounts of information regarding Convertible Debentures. Before initiating any substantial investment, it is prudent to seek suggestions of the financial experts who have a deep knowledge of Convertible Debentures. Before conversion of Convertible Debentures into Common Stocks or shares, it is prudent to have clear insight related to the potential changes in earnings and the relative gains.

Convertible Debentures can usually be categorized into the following types:
Secured Convertible Debentures
Convertible Senior Debentures
Unsecured Convertible Debentures
Subordinated Convertible Debentures
Senior Secured Convertible Debentures

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