Silly Question No.1 : What's the difference between convertible warrant & a convertible debenture?

 

Silly Question No. 2: How would you look at the current rights issue of Tata Coffee (record date 30th Oct)? The Company proposes to issue 62,34,352; 7% Partly Convertible Debentures (PCDs) in the ratio of 1 PCD for every 2 existing equity shares held as on a record date. Each PCD would have a face value of Rs 400/- and will comprise of two parts:
Part A of Rs 250/- would be converted into one fully paid Equity Share of Rs 10/- on allotment. Part B of Rs 150/- would be non-convertible and would be redeemed in equal installments of Rs 50/- each at the end of 4th, 5th & 6th years from the date of allotment. The non-convertible portion will carry a coupon rate of 7% p.a.

 

Silly Question No. 3 : One Mungerilal is very very excited after reading your discourse on warrants. Upon finding that he could not get any good ones from the market, he has joined one underworld gang...he says that at least he will be issued a police warrant. Is he right in this approach?

 

Awaiting your valued response!

 

So for us to assume that there would just be enough in the company to pay off the interest and debt and then have nothing for the shareholders is like keeping the odds a bit too high.

 

Moreover the stock in 5 years should better as long as the company's RoE is more then the cost of capital (interest on debt).

 

Last year when Trent came out with such a structure (One bond of Rs 900 was converted ointo one share of Rs 400 and one bond of Rs 500) I sold off the Rs 500 bond for Rs 410 and bought Trent stock at Rs 650 in about a year I have recovered that capital loss on sale of debenture and also made such additional money.

 

For a risk taking investor it  makes sense to sell the bond and buy equity because the bond will be serviced out of equity.