Convertible rights

Also known as ‘conversion rights’, these give the buyer of a preference share or bond the right to convert it into a set number of ordinary shares for a pre-agreed ‘strike’ price at an agreed point in the future. For the issuer, the main advantage is that by offering convertible rights, which can be exercised after, say, five years, they can pay a lower dividend or coupon in the meantime. For the holder, conversion rights are a chance to make a windfall gain sometime in the future, provided the issuer’s ordinary shares are trading above the strike price when the option is taken. If this isn’t the case, the issuer is often obliged to buy back the preference shares or bonds for a pre-agreed cash price.

MoneyWeek magazine

Latest issue:

Magazine cover
Walking out on the banks

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 3 FREE Issues
Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.

More from MoneyWeek

The problem with the Bank of England

Fracking: Nine reasons not to get carried away

Five small-cap stocks worth a flutter

This Dutch company could help us tame floods

ScreenHunter_01 Mar. 25 09.51

Get the latest tips and investment opportunities from MoneyWeek magazine: Claim 3 FREE issues HERE