Читать книгу Fundamentals of Financial Instruments - Sunil K. Parameswaran - Страница 39

A hybrid security combines the features of more than one type of basic security. We will discuss two such assets, namely convertible bonds and warrants.

A convertible bond is a debt security that permits the investor to convert the bond into shares of equity at a predetermined rate. Until and unless the investor converts the bond, it will continue to trade in the form of a standard debt security. The interest rate on such bonds will be lower than the rate on securities without the option to convert because the conversion feature will be perceived as a sweetener by potential investors. The rate of conversion from debt into equity will typically be set in such a way that the conversion price is higher than the market price prevailing at the time of issue of the debt. For instance, a bond with a principal value of $1,000 may be convertible to 25 shares of equity. In this case the conversion price is $40, and the share price prevailing at the time of issue of the convertible will be less than $40.

A warrant is a right given to investors which allows them to subscribe to the equity shares of the company at a future date at a predetermined price. Such rights are usually offered along with debt securities to make the bonds more attractive to investors. Once issued, the warrants can be detached from the parent security, and can be traded in the secondary market.