Convertible Bonds – an Overview

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Since 2009, approximately 10 issuances of convertible bonds (“CBs” or “bonds”) have been made by Hong Kong-listed companies. CBs are useful financing tools for companies, especially for small- to mid-sized fast-growing companies. This article provides brief guidance in relation to CBs.

ADVANTAGES OF CBS -

A CB is a hybrid security with both equity and debt features. The bondholder can convert the bonds into shares of the issuer at any time or wait until maturity and receive cash at the principal amount. If the CB is issued with a coupon, bondholders can also enjoy interest payments throughout the life of the bond. Alternatively, if the bondholder elects to convert the CB into shares, then the holder will be entitled to dividends with respect to the shares. The price of a CB is closely linked to the share price of the issuer; however, volatility is typically lower than that of the underlying shares because of the debt feature.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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