Mandatory convertible bonds obligate the investor to convert bonds of the issuing into shares upon maturity. The value of a share and quantum of share is generally predetermined by the issuing company.
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The issuing company holds all the rights to convert into equity shares at a predetermined price upon maturity with reverse convertible bonds. It is not the same as regular and mandatory convertible bonds. In this type of convertible bond, the investor or the bondholder has the obligation or right to convert their bonds. Several companies offer a higher interest rate on mandatory convertible bonds because they force investors to convert their bonds into equity shares. Mandatory convertible bonds continue to make regular interest payments till the maturity date upon which bonds are compulsory converted into equity shares.
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These bonds obligate the investor to convert bonds of the issuing into shares upon maturity. Mandatory convertible bonds are the opposite of regular convertible bonds. However, these bonds only give rights to investors and not an obligation to convert into shares. Upon maturity, the investor can make a decision whether to convert the bonds to equity shares of the issuing company at the predetermined conversion price or redeem the bonds at their face value. The issuing company offer periodic interest payments to all its investors till the maturity date in exchange for investing in these types of bonds.
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Regular convertible bonds come with a fixed maturity date and at a preset conversion price. Several companies issue these types of convertible bonds, usually to the public. After getting a clear understanding of convertible bonds, let’s talk about the different types of convertible bonds that companies offer to investors.