By VestAI Research | Last updated: March 2026
Convertible Bond: Meaning, Definition & Indian Stock Market Examples
Bond that can be converted into equity shares at a predetermined price.
What is Convertible Bond?
A convertible bond is a debt instrument that the holder can convert into a predetermined number of equity shares at a set conversion price. It combines bond safety (interest payments, principal protection until conversion) with equity upside. Companies pay lower interest rates than regular bonds due to the conversion option value.
Convertible Bond — Indian Stock Market Example
Indian companies (Wipro, Infosys in early years) issued Foreign Currency Convertible Bonds (FCCBs) to raise cheaper overseas capital. If the stock performs well, FCCB holders convert to equity; if not, they remain as debt. Poorly-performing FCCB issuers have faced severe dilution when bonds could not be repaid and were converted at distressed terms.
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Analyse with OrionFrequently Asked Questions about Convertible Bond
What is an FCCB and how has it hurt Indian companies?
FCCBs are Foreign Currency Convertible Bonds issued in foreign currency (usually USD). If the issuing company's stock falls significantly, investors choose not to convert (since market price is below conversion price), and the company must repay in foreign currency — a double hit of stock underperformance AND forex depreciation. Several Indian mid-caps in 2008–2012 were crippled by FCCB repayment pressures.
What is the difference between convertible bonds and warrants?
Convertible bonds: debt that converts to equity at holder's option — investor gives up bond for equity. Warrants: separate instruments that give the right to buy new shares at a strike price — investor pays additional money to get equity while retaining existing holdings. Warrants are more common in PE/VC deals; convertible bonds in public markets.
Related Terms
Debenture
Unsecured long-term debt instrument issued by a company — backed only by creditworthiness.
Preference Share
Hybrid security with fixed dividend priority over equity but subordinate to debt.
Earnings Per Share
Net profit divided by total shares — profit attributable to each share.
Promoter Holding
Percentage of shares held by founders/controlling shareholders.
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