dc.description | Executive Summary
Convertible bonds have been used world over as an instrument of financing for
companies, and as an investment vehicle for investors. These securities display a
number of unique and interesting characteristics that need to be understood before any
meaningful discussion of their relevance in different markets can he analyzed.
In the paper, which is divided in three parts, I make a case for use of convertibles in
India and argue that the present state of the equity and debt markets would necessitate
such a use. (Surely, convertibles have been in use in India since the ‘5Os, but their use
has been very limited, and the structures have mostly been elementary, with
mandatory conversion a feature of almost all the issues.)
Part I deals with the “Fundamentals of Convertibles”, which is basically an
introduction to what these instruments are, how they are valued, certain peculiarities,
who are the players in the convertible market, and also.what are the different
investment strategies they use.
Part II goes on to Audy convertibles that are more complex. It is necessary that we
have an understanding of these to realize what the scope of the instrument is and how
it can be structured to serve various needs of the issuer and investor.
Part III, finally, deals with the issue of use of convertibles in India. It covers the
Indian IPO market of last year, which shows an extremely dismal picture of primary
markets. Then, the benefits of convertibles to both issuer and investor are explained,
and their relevance in this market situation. In addition, I discuss briefly about the
nature of companies that issue them, and the scope of usage. Finally, I Warn about
some of the dangers that might be expected from the use of convertibles. Here the
historical usage of the so called “death spirals” has been used to illustrate the hazards
involved. | en_US |