NEW INNOVATIVE INSTRUMENTS

There are varieties of innovative financial instruments with different characteristics that may serve the needs of both investors and the companies that use these instruments for raising funds.

Non-Voting Shares

These are the shares similar to equity, but having no voting rights. These will be useful instruments for companies that prefer to raise additional funds without diluting the control of the existing shareholders.

Detachable Equity Warrants

These warrants will be issued with non-convertible debentures (NCDs) or other debt or equity instruments. The firms with growth prospectus would prefer these equity coupons to convertible debentures.

Participating preference Shares

This is a quasi-equity instruments that a company may prefer to issue for supporting its networth without losing its control over management is less risky. The payouts linked to equity dividend and eligibility for bonus is other characteristics of this type of shares.

Participating debentures

The unsecured corporate debt securities that entitle its holders to share profits of a company are called as ‘ participating debentures’. The existing- cum- dividend- paying companies may prefer this issue as it will attract the investors looking for higher returns with risk- taking.

Convertible debentures with options

This is a derivative, which provides flexibility to the issues as well as investors to exit from the terms of its issue. This coupon rate of these securities will be specified at the times of issue itself.

Third party convertible debentures

This is a type of debt with a warrant that allows the investor, the subscription to equity of a third firm at a preferential price vis- a- vis the market price. It has lower interest rate than a pure debt as it has the option of conversion.

Mortgage- Backed securities or Asset- Backed Securities

These refer to the synthetic instruments, which all backed by grouped or pooled assets like mortgages, credit card receivables, etc., for securitising the debt.

Convertible Debentures Redeemable at Premium

The convertible debentures are issued at a face value with a ‘put’ option that entitles the investors to sell the debentures later to the issues at a premium. It is less risky debt than the convertible debts.

Debt Equity Swaps

This is an offer made by its issuers to swap/ exchange it for common stock, However, the Issuer has the risk of dilution of earnings per share whereas the investor has the risk of lack of expected capital appreciation in this issue.

Zero- Coupon Convertible Notes

A zero- coupon convertible note has the characteristic of conversion into common stock. If an investor chooses the conversion, he has to forgo all accrued and unpaid interest, if any. However, this note has the risk of price sensitivity towards the interest rates.