PCD Quiz: Types of Debentures - FCD, OCD Flashcards

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Questions and Answers

What is one of the advantages of investing in convertible debentures?

No risk involved

Immediate repayment of debt

Possibility of capital appreciation (correct)

Guaranteed fixed return

What is a disadvantage for existing shareholders when a company issues fresh shares upon conversion of debentures?

Decreased proportionate holding (correct)

Increased voting rights

Higher coupon payments

Enhanced dividend payouts

What type of debt instrument allows investors to benefit from both equity and debt features?

Government Securities

Mortgage-backed Securities

Corporate Bonds

Convertible Debentures (correct)

What happens to the debt in convertible debentures upon maturity?

Debt is converted into equity shares Signup and view all the answers

What do Depository Receipts (DRs) represent?

Shares of a foreign company Signup and view all the answers

Which feature distinguishes Optionally Convertible Debentures (OCD) from other types of debentures?

Investors have the option to convert into shares or retain as debt Signup and view all the answers

What is the main advantage to the issuer of convertible debentures?

Lower coupon rate compared to pure debt instruments Signup and view all the answers

In Fully Convertible Debentures (FCD), what happens to the entire face value of the debenture?

It is converted into equity shares Signup and view all the answers

What distinguishes Partly Convertible Debentures (PCD) from other kinds of debentures?

A portion is converted into equity and the non-convertible portion remains as debentures Signup and view all the answers

What flexibility do Optionally Convertible Debenture (OCD) holders have?

Flexibility to convert all debentures into equity or hold as debt based on desire Signup and view all the answers

What details are specified by the issuer at the time of making an OCD issue?

Ratio of conversion and proportion of debenture to be converted Signup and view all the answers

What typically happens to the price at which shares are allotted to investors on conversion in convertible debentures?

It is at a discount to the market price Signup and view all the answers

What is the main feature of Fully Convertible Debentures (FCD)?

They are fully convertible into ordinary shares at the time of issue. Signup and view all the answers

What distinguishes Partly Convertible Debentures (PCD) from other debentures?

They are partly convertible into ordinary shares under specified terms at the time of issue. Signup and view all the answers

What is the distinguishing factor of Optionally Convertible Debentures (OCD)?

They provide the option to convert into shares at the discretion of the holder. Signup and view all the answers

How are Fully Convertible Debentures (FCD) different from Non-Convertible Debentures (NCD)?

FCDs are fully convertible into shares, whereas NCDs lack a conversion feature. Signup and view all the answers

In terms of conversion, what makes Partly Convertible Debentures (PCD) unique?

They have a mix of debt and equity features with partial conversion option. Signup and view all the answers

What is the defining characteristic of Convertible Bonds?

They provide the option to convert into shares or cash at a later stage. Signup and view all the answers

Study Notes

Types of Debentures

Fully convertible debentures (FCD) convert entire face value into equity shares
Partly convertible debentures (PCD) convert a portion of the debenture into equity, with non-convertible portion remaining as debt
Optionally convertible debentures (OCDs) allow debenture holders to convert into equity at their discretion

Characteristics of Convertible Debentures

Issuer specifies conversion details at the time of issue, including date, ratio, and price
Convertible debentures typically have lower coupon rates than pure debt instruments
Issuer benefits from lower coupon rates and no debt repayment on maturity
Existing shareholders' stakes may be diluted due to fresh share issuance on conversion

Benefits of Convertible Debentures to Investors

Earn coupon income in the initial stage
May benefit from capital appreciation in shares after conversion
Combine features of equity and debt instruments

Depository Receipts (DRs)

Represent shares of a foreign company
Trade in local market and denominated in local currency
Bear the risk and enjoy the rewards of ownership

Debentures/Bonds/Notes

Issued by companies, government, SPVs, and other issuers
Investors include institutional and individual investors
Medium of issuance includes direct issuance and stock exchange (if listed)
Regulators include RBI, SEBI, and regulators under the Companies Act
Used for raising long-term debt

Types of Debentures/Bonds/Notes

Fully convertible debentures (fully convertible into ordinary shares)
Partly convertible debentures (partly convertible into ordinary shares)
Non-Convertible Debentures (NCDs) (pure debt instruments without conversion feature)
Short-term debt instruments (used for periods not exceeding one year)

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Description

Learn about different kinds of debentures: Fully Convertible Debentures (FCD), Partly Convertible Debentures (PCD), and Optionally Convertible Debentures (OCD). Understand how each type works in terms of conversion into equity shares.