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172 Corporate Finance BRILLIANT’S

placement. The advantage of private placement ßbog‘|Q> hmoVm h¡& àm¶doQ> ßbog‘|Q> hmoZo go bmoZ AmgmZr go
is that loan can be easily obtained at low cost. bmo-H$m°ñQ> na àmßV {H$¶m Om gH$Vm h¡& ’$‘© H$mo AnZo Q>‘©
Firm is not required to underwrite its term bmoZ H$mo AÝS>aamBQ> Zht H$aZm n‹S>Vm& Bg àH$ma go
loans. So, there is saving of underwriting
commission and other costs. AÝS>aamBqQ>J H$‘reZ VWm Aݶ H$m°ñQ> H$s ~MV hmoVr h¡&

(e) Convertible Security (e) H§$d{Q>©~b {g³¶mo[aQ>r
A convertible security is a security that can EH$ H§$d{Q>©~b {g³¶mo[aQ>r dh {g³¶mo[aQ>r h¡ {Ogo
be converted into another security. Convert- Aݶ {g³¶mo[aQ>r ‘| n[ad{V©V {H$¶m Om gH$Vm h¡& H§$d{Q>©~b
ible securities may be convertible bonds or {g³¶mo[aQ>rO H§$d{Q>©~b ~m§S²>g ¶m {à’$S>© ñQ>m°³g hmo gH$Vr
preferred stocks that pay regular interest and h¢ Omo {Z¶{‘V ã¶mO XoVr h¢ VWm gm‘mݶ ñQ>m°H$ Ho$ eo¶g©
can be converted into shares of common stock
(sometimes conditioned on the stock price ap- ‘| n[ad{V©V {H$¶o Om gH$Vo h¢ (H$^r-H$^r EH$ nyd© {ZYm©[aV
preciating to a predetermined level). Warrants ñVa VH$ E{à{gEQ> H$aZo dmbo ñQ>m°H$ àmBg na H§${S>eZ
are equity convertible securities. They give the hmoVr h¢)& do Am°Za H$mo Z¶o Omar {H$¶o J¶o eo¶g© H$mo EH$
owner the option to buy newly issued shares {ZYm©[aV E³gagmBO àmBg VWm {XZm§H$ na IarXZo H$m
at a determined exercise price and date. {dH$ën XoVo h¢&

Types of Convertible Security H§$d{Q>©~b {g³¶mo[aQ>r Ho$ àH$ma
The different types of convertible security H§$d{Q>©~b {g³¶mo[aQ>r Ho$ {d{^ÝZ àH$ma [ZåZ-
are as follows: {b{IV h¢…
1. Convertible bond: In finance, a convert- 1. H§$d{Q>©~b ~m§S>… ’$m¶Z|g ‘| EH$ H§$d{Q>©~b ~m§S> ¶m
ible bond or convertible note or convertible H§$d{Q>©~b ZmoQ> ¶m H§$d{Q>©~b S>oãQ> (¶m EH$ H§$d{Q>©~b {S>~|Ma
debt (or a convertible debenture if it has a ma- ¶{X BgH$s ‘oÀ¶mo[aQ>r 10 dfm] go A{YH$ h¡) ~m§S> H$m EH$
turity of greater than 10 years) is a type of bond
àH$ma h¡ {Ogo hmoëS>a Omar H$aZo dmbr H§$nZr ‘| g‘mZ
that the holder can convert into a specified
ñQ>m°H$ Ho$ eo¶a H$s {ZYm©[aV g§»¶m ¶m ~am~a ‘yë¶ Ho$ H¡$e
number of shares of common stock in the issu-
ing company or cash of equal value. It is a hy- ‘| n[ad{V©V H$a gH$Vm h¡& ¶h S>oãQ> VWm B{³dQ>r O¡go
brid security with debt and equity like features. JwUm| dmbr EH$ hm¶~«rS> {g³¶mo[aQ>r h¡&
2. Preferred stock: Preferred stock (also 2. {à’$S>© ñQ>m°H$… {à’$S>© ñQ>m°H$ ({à’$S>©> eo¶g©, {à’$a|g
called preferred shares, preference eo¶g© ¶m gmYmaU ê$n go {n«’$S²©>g ^r
shares or simply preferred) is a Types of Convertible
type of stock which may have any Security H$hbmVm h¡) ñQ>m°H$ H$m EH$ àH$ma h¡ {Og‘|
combination of features not pos- EH$ B{³dQ>r VWm S>oãQ> B§ñQ¯>‘|Q> XmoZm| H$s
1. Convertible bond
sessed by common stock including n«mnQ>uO g{hV JwUm| H$m EH$ g§¶moJ hmo
properties of both an equity and a 2. Preferred tock gH$Vm h¡ Omo gm‘mݶ ñQ>m°H$ ‘| Zht hmooVm h¡
debt instrument, and is generally 3. Warrant (Finance)
considered a hybrid instrument. 4. Capital note VWm gm‘mݶV… EH$ hmB~«rS> B§ñQ¯>‘|Q> ‘mZm
5. Capital notes
Preferred stocks are senior (i.e., OmVm h¡& {à’$S>© ñQ>m°H$ H$m°‘Z ñQ>m°H$ go
6. Reverse convertible
higher ranking) to common stock, gr{Z¶a (AWm©V² CÀM a¢qH$J) h¡ {H$ÝVw
securities
but subordinate to bonds in terms Xmdo Ho$ AW© ‘| (¶m H§$nZr Ho$ goQ²>g Ho$
of claim (or rights to their share of 7. Embedded option
the assets of the company) and may 8. Rights issue CZHo$ eo¶g© go amBQ²>g) g~Am°{S>©ZoQ> h¢