Convertible bond
lastmod 2020-09-22created 2020-09-222 edits
A convertible bond (轉換社債, CB) is "a right that can be converted into stock," "a bond that carries the right of conversion into stock." It is a corporate bond granted the option to be converted into common stock of the issuing company under certain conditions. Like an ordinary bond, it has a fixed maturity date and pays interest periodically until then. Investors can weigh the certainty of a bond against the speculative nature of stock and choose, while the issuing company can enjoy the effect of redeeming bonds through conversion and gains convenience in financing through reduced interest costs. Issuance is in principle decided by the board of directors, but may be decided by the general meeting of shareholders under the articles of incorporation. History
Convertible bonds were first issued in 1843 by the Erie Railroad Company (Erie Railroad co.) of New York. Railroad businesses need a lot of capital, and it takes a long time before they generate revenue. So a bond was developed that pays construction interest and, once the railroad is completed and generates revenue, offers the prospect of rising stock prices and dividends.
Types
Depending on whether a third party provides a guarantee, they can be divided into guaranteed convertible bonds, secured convertible bonds, and unguaranteed convertible bonds.