Term · Capital Measures & Financing
Convertible Bond
In briefA convertible bond is a bond with the right to exchange it for shares of the issuer. It reduces the interest burden but carries potential dilution. In Germany it usually relies on conditional capital under the Stock Corporation Act.
Definition
A convertible bond is a fixed-income debt instrument that grants the holder the right to exchange it for shares of the issuer under predetermined conditions. It combines debt characteristics with an embedded equity option. In Germany, its issuance regularly requires conditional capital under Section 192 of the Stock Corporation Act (AktG).
Why it matters for small caps
Small and micro caps use convertible bonds to finance themselves more cheaply than through pure debt. On conversion, however, dilution arises that can noticeably affect existing shareholders.
Common misreadings
- A convertible bond is often read as pure debt, even though on conversion it creates additional share capital and thus dilution.
In the process
Frequently asked
Why do companies issue convertible bonds?
The embedded conversion option allows lower coupons than classic bonds. At the same time, equity can be raised on a deferred basis and without immediate dilution.
What does conversion mean for existing shareholders?
If the bonds are exchanged for new shares, the share count rises and earnings per share are diluted, unless existing capital is used.
What is the legal basis in Germany?
Issuance usually takes place via conditional capital under Section 192 AktG, which the general meeting provides for the conversion event.
Related terms
Sources
Primary
Aktiengesetz (AktG) § 192, gesetze-im-internet.de
https://www.gesetze-im-internet.de/aktg/__192.html
https://www.gesetze-im-internet.de/aktg/__192.html
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.