Equity instruments, Financial Management

QUASI-INSTRUMENTS

These instruments are considered as debt instruments for a time-frame and are converted into equity at the option of the investor (or at company's option) after the expiry of that particular time-frame. The examples of these are Warrants, Foreign Currency Convertible Bonds (FCCBs), etc. Warrants are normally issued along with other debt instruments so as to act as a ‘sweetener'.
FCCBs have a fixed coupon rate with a legal payment obligation. They have greater flexibility with the conversion option, at the choice of the investor, to equity. The price of the conversion of FCCB closely resembles the trading price of the shares at the stock exchange. Also, the company may incorporate a ‘call option' at the choice of the issuer to obtain FCCBs before maturity. This may be due to the adverse market conditions, changes in the shareholding pattern, changes in tax laws, etc.

A Euro Convertible Bond is issued for investments in Europe. It is a quasi-equity issue made outside the domestic market and provides the holder with an option to convert the instrument from debt to equity. An added feature nowadays is to allow conversion of Euro Convertible Bonds into GDRs. Till conversion, interest is paid in US dollars and bond redemption is also done in US dollars; thus, while the investor would prefer the convertible bond as an investment instrument, the issuing company tends to prefer a GDR. An investor can exercise the conversion option at any time or at specified points during the convertible life. The investor exchanges the convertible bond for a specified number of shares.

 

Posted Date: 9/10/2012 5:23:36 AM | Location : United States







Related Discussions:- Equity instruments, Assignment Help, Ask Question on Equity instruments, Get Answer, Expert's Help, Equity instruments Discussions

Write discussion on Equity instruments
Your posts are moderated
Related Questions
I am looking for assignment help on the topic Structure and Organization of Treasury. It would be great if anyone help me.

Bid The price buyers provide to acquire securities or privacy from sellers.

Flowcharts - Documenting the accounting system Depict in outline the sequence of events in a system showing document flow and department or function responsible for every ev

Valuing Debt Securities Securities which promise to pay its investors a stated rate of interest and return principal amount at the maturity date are known as debt securities.

The price-yield relationship of a non-callable or a non-putable bond is convex because price and yield are inversely proportional. Figure 1 shows the price-yield

Sovereign Rating This includes rating a country as to its creditworthiness, probability of default, etc.

Can a corporation have too much working capital?  Explain. A firm can have in excess of working capital if it is losing the opportunity to invest in high returning fixed assets

Investment Objectives: Any investment should always start with identifying its objective. Thus, the first step in the pension fund investment management system is defining the

Does financial leverage (debt) have any impact on the Free Cash Flow, on the Cash Flow to Shareholders, on the growth of the company and on the value of the shares? Debt has no

Characteristics - Nature of Financial Management: 1) Financial Planning and Control: Finance is a base for all the business activities. Business Activities should be not on