Concept of Convertibles
➦ Convertible is one the feature of carried out by bonds, debenture and preferred stock which gives the option to the bondholders or stockholders to convert the shares into common stock.
➦ Convertible securities are the bonds, debentures and preferred stocks having convertible features are converted into common stock under pre-specified terms and conditions which is clearly mentioned at the time of issuance of these securities.
➦ Convertible securities receive fixed return on and additionally get option of conversion.
➦ Convertible securities are issued to reduce cost of capital, increase the marketability, avoid dilution and deferred equity financing.
➦ Securities having convertible features are generally sold with less coupon rate or dividend rate than securities having no convertible feature.
➦ Some firm may have poor financial status but have future growth at that time firm can sell convertible securities at higher price than prevailing price.
➦ With the help of convertibles firm control the control position. Securities having convertible feature are more attractive than without convertible feature.
