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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
8 of the best properties for sale with communal gardensThe best properties for sale with access to communal gardens – from an apartment in a listed building opposite London’s Hyde Park, to a wing of a mansion with access to 180 acres of parkland in Henley-upon-Thames
-
The five insurance policies you should haveSome insurance cover will be more important than others. We look at five insurance policies you may need to have to make sure you aren’t caught out in an emergency
