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CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

Which feature best distinguishes a convertible debenture from a non-convertible debenture issued by an Indian company?

A convertible debenture is distinguished by its conversion feature: the holder may, or must, convert all or part of the debenture into equity shares on terms fixed at issue. A non-convertible debenture remains debt until redemption and has no such conversion right.

  1. AIt carries no fixed rate of interest under any circumstances
  2. BThe holder has the option or obligation to convert all or part of the debenture into equity shares as per the terms of issueCorrect
  3. CIt can be issued only to banks and financial institutions
  4. DIt is always secured by a first charge on all fixed assets

Explanation

A convertible debenture carries a conversion feature under which the debt can become equity shares on terms fixed at issue. A non-convertible debenture stays as debt until redemption. Interest is generally payable on convertible debentures until conversion, so the first option is wrong.

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