A complete beginner’s guide to exchangeable bonds

1. A complete beginner’s guide to exchangeable bonds

2. Bonds are typically fixed income instruments that represent the debt incurred by the borrower (i.e. Governments and corporations) by accepting investments from multiple or individual creditors (i.e. people like you). An issuer usually pays the investor a fixed return when their bonds mature. There are various types of financial bonds available for you to invest in. With the bonds being offered by governments and corporations around the globe, it can get quite confusing to choose the right investment option among the many available. However, exchangeable bonds are quite popular among the lot as they offer quite attractive returns. If you are interested in them and wish to know more about them, here’s a complete beginner’s guide to exchangeable bonds for you!

3. What exactly are exchangeable bonds? Exchangeable bonds are essentially an agreement between an issuer and the bond-holder. This gives the latter an option to exchange the bonds for the subsidiary company. The exchange can be only called on at a pre-defined date in the future under specific conditions. Exchangeable bonds have a much higher value when compared to straight bonds as they can be further converted into the stocks of a company. Due to this ability to provide additional returns, bondholders usually accept these exchangeable bonds at lower coupon rates. The issuers also enjoy lower interest rates and thus prefer to deal with exchangeable bonds.

4. Benefits of acquiring exchangeable bonds • Exchangeable bonds are highly preferred by income investors due to many reasons. To enlighten you more, here are a few of the benefits of acquiring exchangeable bonds: • 1. Profitable for all • An exchangeable bond is beneficial for the issuers as they get to enjoy lower interest rates. The bondholders, on the other hand, get to earn returns not only from the coupon rates of the bond but also from the price changes of the underlying stock. • 2. Safeguards you against inflation • Compared to conventional corporate bonds, exchangeable bonds provide income investors with better inflation protection. This is highly desirable by income investors as these are the type of investors that focus on building a portfolio that generates regular income. As inflation can impact their regular income negatively over time, such investors prefer exchangeable bonds over straight bonds, i.e. bonds with no special features. • 3. Avoids dilution of the issuer • Convertible bonds allow the holder to convert their bonds to the stocks of the issuing company. This compels the issuing company to keep producing more stocks thus resulting in the dilution of their shares. This is not the case with exchangeable bonds as they are only exchanged in turn for the shares of any company other than the issuing company. This avoids dilution of the parent company and is a great way for them to reduce their stakes in their subsidiary companies.

5. Exchangeable bonds are a great addition to your investment portfolio as they work as a stock market investment that is coupled with coupons! Exchangeable bonds trade like bonds when the share price of the underlying stock is lesser than the exchange price. However, you need to deal with them like stocks when the exchange price is lower than the share price of the stock. Start your investment journey in the private market with ADDX. It is a proprietary platform that lets you invest with as little as $10,000! Get the opportunity to make unicorn start-ups, pre-IPO companies, hedge funds, and other such financial assets a quintessential part of your investment portfolio that would traditionally require very deep pockets for you to enter. ADDX is regulated by the MAS (Monetary Authority of Singapore) and is open to all non-US accredited and institutional investors.