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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.
Companies issue convertible debentures as fixed-rate loans, paying the bondholder fixed interest payments on a regular schedule. Bondholders have the option of holding the bond until maturity?at which point they receive the return of their principal?but, holders may also convert the debentures into stock.
A convertible debenture can be converted into common shares of the issuing company after a predetermined time. This time is determined by the trust indenture. The convertible holder has the advantage of enjoying any share price appreciation of the company after conversion.
Key features of NCDs are: They are non-convertible in nature. They cannot be converted into the equity or shares of the company at a later date. They are usually issued for a long term.
A convertible bond is a fixed-income corporate debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares. The conversion from the bond to stock can be done at certain times during the bond's life and is usually at the discretion of the bondholder.
A convertible debenture can be transformed into equity shares after a specific period. The option of converting debentures into equity shares lies with the holder. A convertible debenture will provide regular interest income via coupon payments and repayment of the principal amount at maturity.
The following are the types of convertible debentures. Fully Convertible Debenture. ... Partially Convertible Debenture. ... Conversion Price. ... Conversion Ratio. ... Quantum of Conversion. ... Convertible Value. ... Time of Conversion. ... Coupon.
?If-converted? method This method is used when there is no additional form of payment to the company and is generally applied to preferred stock and convertible debt. When a preferred stock or convertible debt is converted, it increases the number of common shares outstanding.