Convertible Securities

Generally

Debt securities are sometimes issued on the basis that they are convertible¹ at the option of the holders into fully paid shares of the company.² Loan stock is traditionally convertible only once a year for a one-month period after the company's annual report has been published, whereas eurobonds are normally convertible at any time from the start of the conversion period³ until shortly before maturity. As the debt is, in commercial terms, contingent equity, it is usual to provide that the conversion 'price'⁴ is adjusted on the occurrence of certain specified events, so that the holder's contingent interest in the share capital of the company is not diluted.⁵ The practice in convertible eurobond issues is for the conversion price to be adjusted for any event which would otherwise reduce