2.2.1 Conversion ratio is the ratio in which a bond can be exchanged for
equity shares.2.3 Conversion Price :
2.3.1 Conversion Price is the per share price paid for equity shares, that
is by dividing the par value bond with the conversion ratio.2.4 Conversion Timing
2.4.1 Bonds convertible in a specified period are referred to as
conversion timing.2.5 Conversion Value :
2.5.1 Conversion Value is the value of a bond equal to the market value
of the equity shares in to which it can be converted. Conversion
value can be obtained by multiplying the conversion ratio by the
existing price of the firm’s equity.- SEBI guidelines on conversions are as follows :-
- The conversion premium and conversion timing shall be mentioned in the prospectus.
- Conversion will be optional, if it takes place between 18 to 36 months.
- There must be compulsory credit rating, if the conversion period exceeds 18 months.
- Non-Convertible Debentures:
4.1 Non convertible debentures are an instrument for raising long-term debt capital.
It is like a promissory note. The features are as follows:
- A debenture issue is sold to the public through a trustee, usually a bank, to
protect the interest of debenture holders. - Debentures are secured by a charge on the immovable properties.
- For such debenture issues with maturity period of 18 months a Debenture
Redemption Reserve (DRR) has to be created equivalent to at least 50
percent,. - A Company is free to choose the coupon rate, which may be fixed or floating
in relation to a benchmark rate. - A company may choose its own maturity period.
- Debentures with a ‘call’ feature may be redeemed by the company before the
maturity date. The debentures with a ‘put’ feature may be redeemed by the
holder before the maturity date.
- Public Sector Undertaking (PSU) Bonds: