Skip to main content

ZERO COUPON CONVERTIBLE NOTES (ZCCN)

Image
By

▪It is a debt instrument convertible into equity shares by issuer Company at after certain period. 

▪If investor chooses to convert its ZCCN into equity shares, he has to forego his entire accrued & unpaid interest. Since this instrument doesn‟t carry past obligations like accrued & unpaid interest at time of conversion into equity, therefore, it is known as Zero Coupon Convertible Notes.

▪Generally issued with put option (right to sell) to the investors. Advantages to the issuer is the raising of convertible debt without heavy dilution of equity. 

▪Since the investors give up acquired interest by exercise of conversion option, the conversion option may not be exercised. 

Benefits to the Issuer Company and investors: This instrument reduces the financial burden (i. e. accrued and unpaid interest) of the Company. This instrument also reduces the burden of payment of principal amount after certain period (at the time of maturity). 

Investor gains in event of appreciation in value of the equity shares. Even if appreciation doesn‟t materialize, the investor has the benefit of steady stream of implied income. If the instrument is issued with put option, the investor can resell the securities to the investor.

Comments

Post a Comment

Popular posts from this blog

BANKING BACKGROUND AND ITS GROWTH:

By
BANKING BACKGROUND AND ITS GROWTH For having a healthy economy there has to be a sound and effective banking system. The banking system of India should be able to meet new challenges posed by the technology and any other internal and external factors. For the past three decades several significant achievements have been observed in Indian banking system especially towards credit facilities. In fact, Indian banking system has reached gradually to remote places of the country also. The government’s regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks in India. The first bank in India (although conservative/rigid) was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct stages. Stage-I:  Early phase from 1786 to 1969 of Indian Banks. Stage-II: Nationalization of Indian Banks and unto 1991 prior to Indian banking sector reforms. Stage-III:   New ...
3 comments
Read more

MORTGAGE BACKED SECURITIES

By
Mortgage – backed securities (MBS) are bonds secured by home and other real estate loans. They are created when a number of these loans, usually with similar characteristics, are pooled together. These securities assure a fixed return which is derived from the performance of the specific assets. They are issued with a maturity period of 3 to 10 years and backed by pooled assets like mortgages, credit card receivables, etc.  Example: A bank offering home loan might round up Rs.20 crore worth of such loans. That pool is then sold to a Government Agency or a government sponsored – enterprise (GSE), or to others to be used as the collateral for the new MBS.  Features of assets to be securitized: The assets to be securitized shall have the following features:- (a) The cash flows generated from the assets should be received periodically in accordance with a Pre – determined schedule. (b) The actual cash flows generated from the assets should be predictable. (...
Post a Comment
Read more

HEDGE FUNDS

By
Hedge means Fence, Barrier & Hurdle (other meaning – Protection & Security). In other words, it is a process of reducing and controlling future risk by taking some steps in advance.  Hedge fund refers to an alternative investment vehicle that is designed to protect investment portfolios from market uncertainty, while generating positive returns in both up and down markets. Hedge funds are unregistered private investment partnerships, funds or pools that may invest and trade in many different markets, strategies and instruments (including securities, non – securities and derivatives) to provide certain periodic and standardized pricing and valuation information to investors.  In short, it is an alternative investment that is designed to protect the Capital (investment amount) of an investor from market uncertainty and generate positive returns from the market fluctuations.  What is Hedging Concept?  Case Study: STEEL INDUSTRY  Facts: An...
Post a Comment
Read more