BASIC FEATURES OF CONVERTIBLE DEBENTURES :

• Debentures are issued for cash at par.

• They are converted into specified or unspecified number of equity shares at the end of the specified period. The ratio at which the convertible debentures are exchanged for equity shares is known as conversion price or conversion ratio which is worked out by dividing the face value of a convertible debenture by its conversion price. For instance if the face value of a convertible debenture is ` 100 and it is convertible into two equity shares, the conversion price is ` 50 and the conversion ratio is 2. The difference between the conversion price and the face value of the equity share is called conversion premium.

• Convertible debentures may be fully or partly convertible. In case it is fully convertible the entire face value is converted into equity shares on expiry of the stipulated period. If partly convertible, the convertible portion is converted into equity shares on expiry of the specified period and the non convertible portion is redeemed at the expiry of certain period.

• Conversion into equity shares may take place in one or more stages at the end of specified period or periods in the case of fully or partly convertible debentures.

• If one or more parts of the debentures are convertible after 18 months, a company should get a credit rating done by a credit rating agency approved by SEBI. Fresh rating is required if debentures are rolled over.

• Convertible debentures of public companies are listed on the stock exchanges to assure liquidity to the holders. However, even today debt instruments are not actively traded in Indian stock exchanges.