Convertible Bond Financing Methods Discussed

A convertible bond is a bond that gives the holder the right to convert the bond to common shares of the issuer at a fixed ratio during a stated period. As a bond, it has some characteristics of fixed income securities, while its conversion feature is of the feature of equity. The article, at first, introduces the convertible bond's basic concepts and terminology. Comparing with other straight debt or equity financing, convertible bonds can offer lower cost debt-financing with interest expenses tax-deductible and potential sale of equity at a premium . China is now facing an opportunity of developing the convertible security market. In the article, the author puts forward the suggestion: enlarge the convertible market scale and reduce the limits of regulations.More and more corporations are finding that their financing requirements can be achieved on the convertible market, as structures can be tailor-made to suit a particular company's needs. The author analyses the characteristics of convertible items such as coupons, conversion price, call or put option and so on.At the end of the article, the author gives a suggestion to investors to convertible bonds. Investors buy convertible bonds having a lower current yield with the hope of a much higher price of the shares in the future. However, they should understand that convertible bonds have risks too, although they are not so high.