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Could someone clear this up for me, a bondholder will not convert if the bond value is more than the conversion value on date for conversion? Example: on date of conversion Bond is quoted at $142 & Conversion Value is $124.50. Because the bondholder will loose out?
Also I read in the BPP “A company will aim to issue bonds with the greatest possible conversion premium as this will mean that for the amount of capital raised, it will, on conversion have to issue the lowest number of new ordinary shares” Does this means that the bondholder will not convert once there is a premium and if they do what happens to the premium?
you are talking about the convertible bond.
company’s view,
they issue this to raise fund.
shares is the most expensive form of fund.investor’s view
they prefer liquidity.
money in short term or gain in transaction in short time
shares are most risky form of investing.if bond is quoted at 142, investor can get the 142 from the company as premium.
or else he can chose to have a share of value 124.5.
so, we assume investor would chose the higher value.Okay understood quick question, companys would prefer investors not convert as it may dilute the shares?
yes, companys prefer not to convert.
main reason, shares are liablilities for perpetuity,
and it dilutes the current shares.also, company has one adv if they chose to convert to shares, the company does not have to repay the loan. in that case, they prefer to get it convert.
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@apples123 said:
Okay understood quick question, companys would prefer investors not convert as it may dilute the shares?Not necessarily I think. Debts means cash outflow at due date(liquidity issue). Also, if the Co. wants to dilute existing shareholder’s wealth, it may like investors to convert.
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