Wednesday, November 5, 2014

Sweetening debentures

The main object of issuing convertible debenture is to make the issue attractive enough so that it is fully subscribed. Investors generally prefer fixed interest convertible debentures over non-convertible because this enables them to earn a definite, fixed income with the chance of making, capital gains. Hence, the convertible feature “sweetens” the issue. Also, the company may offer relatively low interest rate on convertible debenture because of the value of the conversion feature as compared to a non-convertible debenture. By adding the convertibility feature, the company has sweetened the issue & ensured its success. Also, it has been able to save on interest cost.

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