Hey my fellow friend, I understand the concept of exchangeable bond. But i just can’t get the rational. Why somone need to issue this security? I don’t understand its benefits? One of the benefit is delay the tax impact and control timing of gain?
Hi, Yes, delay of tax impact is one of the reasons. Also, a company can gain from borrowing at lower interest rates as the option of conversion will lead to investors accepting lower coupon rates. In addition, companies may want to sell off their positions in other companies and feel issuing an exchangeable bond would allow them to do so. Another important factor to consider is that exchangeable bonds do not dilute the issuer’s shareholders as bonds are converted into the shares of another company. Hope this helps.
It is definitely help. I gte the concept now. appreciate for the effort to explain.