Conversion right classification |
Conversion Right |
Warrant |
Exchange Right |
converted asset |
newly issued common stock(issuing company) |
newly issued common stock(issuing company)) |
company owned common stock(including own stock) |
cash inflow upon exercise |
no new fund |
new fund (not if alternative payment (put option) exsits) |
no new fund |
continuation of bond upon conversion |
No |
Yes (if alternative payment no) |
No |
Separate transaction of conversion rights |
Not possible |
Bond and Warrant can be traded separately. |
|
Effect on financial structure |
Principal and Interest repayment obligation disappears upon exercise(decreased debt, increased capital) |
Principal and Interest repayment obligation disappears upon exercise(decreased debt, increased capital) |
Principal and Interest repayment obligation disappears upon exercise(decreased debt, increased capital) |
Common stock acquisition cost |
Conversion price |
exercise price |
exchange price |
when voting right is granted |
when conversion right exercised |
when exercise payment is paid |
when exchange right is exercised |
|
EB < CB < BW < Corporate Bond |
coupon rate |
- BW requires additional funds to exercise conversion rights. -> disadvantageous to investors and often pays higher coupon
- EB, unlike CB/BW does not issue new shares -> lower dilution risk for EB and EB often pays lower coupon
|