DEFINITION of 'Partially Convertible Debenture - PCD'

Partially convertible debenture is a type of convertible debenture, part of which will be redeemed by the issuing company after a specified period of time and part of which is convertible into equity or preference shares at the end of the specified period. The ratio of conversion for the partially convertible debenture is decided by the issuer when the debenture is issued.

BREAKING DOWN 'Partially Convertible Debenture - PCD'

Any partial conversion will be optional at the hands of the debenture holder. Partially convertible debentures differ from fully convertible debentures, in which all of the instrument must be converted into equity. However, depending on the specific terms, it is possible that a conversion of such an instrument may be mandatory for that partial debenture once the time period for redemption has been reached or it could be left to the investor’s discretion. Cash is not often involved in the issuance and handling of these instruments because the debentures are converted into equity stocks.

Why Partial Convertible Debentures are Offered

Attracting new investors to help finance a company during a period when its bonds might not offer the best returns can create a challenge to continue with a growth or development strategy. Companies that are seeking medium- or long-term financing through debenture instruments might make partially convertible debentures available to possible investors. The nature of the instrument offers potentially lucrative options for investors while giving the company some control over the conversion and redemption of such bonds. This hybrid instrument differs from fully convertible debentures, which all must be converted to equity shares when the period comes to a close.

The conversation price to turn the debentures into equity stocks is typically higher than the current market price for a company’s shares. The assumption is that the company’s shares will grow in value while this instrument is held, which is why the conversion price is typically set higher than the market value.

Partially convertible debentures may be used as an incentive to make bonds that are otherwise unattractive more appealing to investors. If bonds have yields that are not enticing for investors, the addition of a partial convertible element could make them more worthwhile as investment options.

Depending on the time interval, a partial conversion debenture bond may have a redemption date that is applied part way through the bond’s maturity period. For instance, a 20 year partial conversion debenture bond might have its conversion period set at 10 years.

RELATED TERMS
  1. Convertible Debenture

    A convertible debenture is a type of loan issued by a company ...
  2. Compulsory Convertible Debenture ...

    Compulsory Convertible Debenture (CCD) is a type of debenture ...
  3. Debenture

    A debenture is a type of debt instrument that is not secured ...
  4. Debenture Redemption Reserve

    A debenture redemption reserve is a provision that states that ...
  5. Hung Convertibles

    Convertible securities that are very unlikely to be converted ...
  6. Agency Debentures

    Agency debentures are debt issued by either a federal agency ...
Related Articles
  1. Investing

    An Introduction to Convertible Bonds

    Getting caught up in all the details and intricacies of convertible bonds can make them appear more complex than they really are.
  2. Investing

    3 Best High-Yielding Convertible Bond ETFs (CWB, ICVT)

    Discover how convertible bond ETFs can offer investors growth and income while hedging fixed income portfolios in a rising rate environment.
  3. Investing

    3 Best High-Yielding Convertible Bond Mutual Funds (LACFX, FACVX)

    LACFX,FACVX,VCVSX: Learn about three of the highest-yielding options available.
  4. Investing

    Introduction to Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  5. Investing

    Leverage Your Returns With A Convertible Hedge

    Find out how you can maintain your income stream by using this type of bond strategy.
  6. Investing

    The Top 3 Convertible Bond ETFs for 2016 (CWB, ICVT)

    Obtain detailed information on the exchange-traded funds (ETFs) available for traders seeking ETF exposure to convertible bond investments.
  7. Investing

    Income Funds 101

    Income funds don't have to be bonds, there are plenty to choose from. Read up on the types of income funds and whether they fit your investment needs.
  8. Financial Advisor

    Why a Roth Conversion May Make Sense Now

    Converting to a Roth IRA is a simple strategy that can help weave a silver lining from an otherwise financially mediocre year.
  9. Retirement

    3 Reasons to Convert Your IRA to a Roth IRA

    Having an IRA is smart. Knowing when to convert it to a Roth IRA is smarter because it can give you and your heirs a welcome tax advantage.
RELATED FAQS
  1. What is the difference between a debenture and a bond?

    Debentures and bonds can both be used to raise capital, but debentures are typically issued to raise short-term capital. Read Answer >>
  2. Preference shares vs. debentures

    Learn why preference shares are equity securities and debentures are debt securities. Understand the differences between ... Read Answer >>
  3. Where does the stock come from when convertible bonds are converted to stock?

    First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to ... Read Answer >>
  4. How is convertible bond valuation different than traditional bond valuation?

    Read about bond valuation, particularly the differences between how a traditional bond is valued and how a convertible bond ... Read Answer >>
Hot Definitions
  1. Capital Asset Pricing Model - CAPM

    Capital Asset Pricing Model (CAPM) is a model that describes the relationship between risk and expected return and that is ...
  2. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  3. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  4. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  6. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
Trading Center