Convertible corporate bonds, also known as convertible corporate bonds, refer to corporate bonds issued by issuers in accordance with legal procedures and can be converted into shares in accordance with agreed conditions within a certain period of time. Convertible corporate bonds are corporate bonds that are given the right to convert shares into shares. There are three basic conversion conditions in advance when they are issued: conversion price or conversion ratio; Contents of shares issued at the time of conversion; Request conversion period.
Financing characteristics of convertible corporate bonds
It has the dual nature of bonds and stocks. Convertible corporate bonds are first of all a kind of corporate bonds, which are fixed-income securities. They have clear bond maturities and fixed interest rates, providing investors with stable interest income and debt repayment guarantee. Therefore, convertible corporate bonds have sufficient creditor's rights.
Convertible corporate bonds provide investors with the right to convert into stocks, which has the meaning of options, that is, investors can exercise the conversion right to convert convertible corporate bonds into stocks, or they can give up this conversion right and hold bonds until maturity. In other words, convertible corporate bonds contain the characteristics of stock call options, and investors can get the gains from stock rising by holding convertible corporate bonds. Therefore, convertible corporate bonds are derivatives of stock options and are usually regarded as secondary financial derivatives of options.
Convertible corporate bonds give investors the lowest income right.
The biggest difference between convertible corporate bonds and stocks is that they have the characteristics of bonds. Even after losing the conversion significance, as a low-interest bond, there will still be a fixed interest income. At this time, investors as creditors can get fixed principal and interest income. If the conversion is realized, the income from selling ordinary shares or dividend income will be obtained. Convertible corporate bonds have the advantage of "not capping at the top, but guaranteeing at the bottom" for investors. When the stock price rises, investors can convert bonds into stocks and enjoy the benefits brought by the stock price rise; When the stock price falls, you can enjoy the fixed interest income every year, and you can repay the principal at maturity without conversion.
The current income of convertible corporate bond financing is higher than that of common stock dividend.
Investors can get regular interest income while holding convertible corporate bonds. Usually, the current income of convertible corporate bonds is higher than the dividend of common stock. If not, convertible corporate bonds will be converted into stocks soon.
Convertible corporate bond financing has priority over stock financing.
Convertible corporate bonds are inferior credit bonds, which have the same recourse as ordinary corporate bonds and long-term liabilities (bank loans) in repayment order, but rank behind ordinary corporate bonds and can be repaid in priority compared with convertible preferred stocks, preferred stocks and common stocks.