Category Archives: HYBRID FINANCING INSTRUMENTS

Option Value (OV)

Option Value (OV) The investors have an option that is, they may nor exercise the right/exercise the right at a lime of their choosing and select the most profitable alternative. Thus, the option has value in the sense that the value of debenture will be higher than the floor values. Therefore, the value of the convertible debentures = Max (SDV , CV) + OV. Finance-Assignments.comInstructions Feel free to se

Conversion Value (CV)

Conversion Value (CV) If the holders opt for conversion, is equal to the share price maturity the conversion ratio, that is, the number of equity share offered for each debentures. If the price of share is, Rs 50 and one debenture is convertible into 5 shares (conversional value = 5), the CV = Rs 250 (Rs 50 x 5). The value of a convertible debenture cannot be less than the SDV and CV which, in the represent its t

Optionally Convertible Debentures

Optionally Convertible Debentures The value of a debenture depends upon there fact (i) straight debenture value. (ii) conversion value and (iii) option value. Straight Debenture Value (SDV) Equals the discounted value of the receivable interest principal repayment, if retained as a straight debt instrument. The discount factor upon the credit rating of the debenture. Where, Maturity period = 8 years. Discount

Valuation

Valuation The convertible debentures presently in India can he of three types: (i) compulsorily convertible within 18 months, (ii) optionally convertible within 36 months and (iii) convertible after 36 months with call and put features. However, only the first two types are popular. Compulsory Partly Fully Convertible Debentures Value. The holders of PCDs receive interest at a specified rate over the term of the d

CONVERTIBLE DEBENTURES BONDS

CONVERTIBLE DEBENTURES BONDS Features Convertible debentures give the debenture-holders the right (option) to convert them into equity shares on certain terms. The holders are entitled to a fixed income till the conversion option is exercised and would share the benefits associated with equity shares after the conversion. The operational features of convertible debentures in India at present are as follows. All t

Demerits

Demerits The shareholders suffer serious disadvantages such as (a) vulnerability to arbitrary managerial action as they cannot enforce to dividend right to payment in case of redemption. and (b) modest dividend in the context of the associated risk. For the company, the preference capital is an expensive source of finance due to non-tax deductibility of preference dividend. In brief, preference capital (i) i

Merits

Merits The advantages for the investors are: (i) stable dividend. (ii) the exemption investors on preference income to the extent of dividend paid out. The issuing company several advantages, namely, (i) no legal obligation to pay preference dividend and dividend without facing legal action, bankruptcy. (ii) redemption can be delayed without an penalties, (iii) as a part of net worth, it improves the creditwor

Participation Features

Participation Features Preference capital may be participating entitling participation profits, if any, that is, profits after payment of preference dividend and equity dividend at a certain specified. Similarly, it may be entitled to participate in the residual assets after the their normal claim according to a specific formula in the event of liquidation of the company. Evaluation Preference capital as a so

Voting Rights

Voting Rights Preference capital ordinarily does not carry voting rights. It is, however, vote on every resolution if (i) the preference dividend is in arrears for two years in cumulauve preference shares or (ii) the preference dividend has not been paid for a two more consecutive preceding years or for an aggregate period of three more proceeding six years ending with the expiry of the immediately preceding f

Fixed Dividend

Fixed Dividend Preference dividend is fixed and is expressed as a percentage of par value is not a legal obligation and failure to pay will not force bankruptcy. Preference capital called a fixed income security. Convertibility Preference share capital may sometimes be convertible partly fully into shares debentures at a certain ratio during a specified period. A variant in India is convertible preference share