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Overview

Convertible Bonds

Convertible bonds are bonds that can be converted to shares at the conversion price. In other words, the holders of convertible bonds can get the stock of the company of the issuer of convertible bonds at the conversion price*.

  • The conversion price is the price per share to be issued upon conversion. For example, if you convert JPY 1 million worth of convertible bonds at the conversion price of JPY 10,000, you will obtain 100 shares.
    The conversion price is usually determined before issuance, however, some convertible bonds may have clauses that allow adjustments to the conversion price within a certain period after issuance.

Characteristics

Convertible bonds can be converted to stock at the conversion price.
Therefore, in general, when the stock price rises, you can expect to benefit from price gains in its convertible bonds. Since convertible bonds come with the added feature of conversion into stock, it is typical for convertible bonds to have lower coupon rates than straight bonds.
In the case of interest-bearing bonds, you will receive regular interest payments. In addition, if you hold them to maturity, you will be able to redeem them at par value. Therefore, even if the stock price drops significantly, the change in the value of the convertible bonds will be relatively small.