Tuesday, April 20, 2010

A New Way to Collect The Debt Fund(Convertible Debt Bonds)

Convertible debt is one of the hybrid investment where one can invest in the debt bonds and these debt bonds transfer to equity shares on the later period.
Debt bonds help to get the debt for long period of time as well as it not arise any liquidity crunch situation among the company to return the cash on the maturity of the debt bonds.
US and the Japan are the two largest debt bonds market in the world.
What are the basic need that a company use convertible bonds or convertible debt bonds,company wants to get the finance with lowest cost and debt bonds fulfill that also it help to arrange debt finance for long period of time.

According to the transfer norms convertible bods divided in the different categories:
1.Issuer terms based:
I used this terms as these bonds are converted into the equity on the maturity but the conversion depends on the will of the issuer. If the issuing company does want to transfer the debt bonds than its pay the amount on cash to the holder with interest on it.

2.Conversion on the third party shares:
Generally this is not a convertible bonds as because the issuer company issue any third party shares to the holder in place of its own shares . This type of convertible bonds issued by the newly opend company .

3.Mandatory convertible:
This is the actual convertible bonds where the issuer company transfer there convertible portion on equity shares after the maturity period.
4.Cash payments:
Here the issuer company paid the amount as per the current market value of the bonds with the interest amount or paid more amount than the actual market rate .

5.Issue of the old or new dividend based bonds:
Here the issuing company has right to issue the shares based on old or new dividend rates.
6.Partial convertible bonds:
The issuer company transfer a fraction amount to the bonds to the share and paid the remaining amount as cash with interest on it.

7.Issue of the holding company shares:
Here the issuing company transfer the bonds on the holding company shares ,these issue help to get the AAA rated company shares by the investor .
8.Reverse convertible:
Reverse convertible is actually one type of extension of the maturity period by the issuing company on the maturity date of the old bonds.

Uses:
1.Long term borrowing:
Issuing company arrange the finance for a long time ,because the convertible debenture maturity period some time more than 5five financial years.
2.Low cost of borrowing:
The cost of borrowing is less than the debt borrow ,here the interest rate calculated on the bonds but paid on the maturity as well as the company no need to pay the liquid cash on the maturity period ,they only transfer the amount on shares.
3.Voting Right transfer:
voting right transfer only when the equity shares given on the conversion but if the preference shares issue than the no voting right transfer to the holder of the shares.

4.Help to collect the huge amount by debt:
There is certain condition that a company cannot raise fund by debt after a certain amount but the convertible debt bonds help to get extra amount from the market.
5.Tax advantage:
Tax calculated on the net profit of any company but the interest on the convertible bonds deducted before the tax deduction.

1 comment:

  1. Thank you for your great job. This is the information I have been looking for..
    Debt Collection

    ReplyDelete