HYBRID

FINANCING
PREFERENCE SHARE

CONVERTIBLE
DEBENTURE

WARRANT
 WHAT IS HYBRID FINANCING

Hybrid financing defined as a combined face of

equity and debt. This means that the characteristics
of both equity and bonds can be found in hybrid
financing.
There are several types of hybrid financing like
preference capital, convertible debenture, warrants,
innovative hybrids and so on.
 PREFERENCE SHARE

Preference capital : Carries a fixed rate of dividend

which is payable a the discretion of directors when
the company has distributable surplus.

FEATURES
Convertibility
Redeemability
Participation in surplus profits and assets
Voting rights
 CONVERTIBLE DEBENTURE

Convertible debentures: is a debenture that is

convertible, partially or fully, into equity shares.

It is debenture that can be changed into a specified

number of ordinary shares, at the option of the owner.
The most notable feature of this debenture is that it
promises a fixed income associated with debenture as
well as change of capital gains associated with equity
share. Because of this combination of fixed income and
capital gains in the convertible debenture, it has been
called a hybrid security.
CONVERTIBLE DEBENTURE
CERTIFICATE
 WARRANT

A warrant entitles the purchase to buy a fixed

number of ordinary shares, at a particular price,
during a specified time period. Warrants are issued
along with debentures as ‘sweeteners’.

Warrants: gives its holder the right to subscribe to

the equity shares’ of a company during a certain
period at a specified price.
 FEATURES OF WARRANT

Exercise price: is the price at which its holder can

purchase the issuing firm’s ordinary shares
Exercise ratio: states the number of ordinary shares that
can be purchases, at the given exercise price per warrant.
Expiration date: is the date when the option to buy
ordinary shares in exchange for warrant expires.
Detachability: if a warrant can be sold separately from
the debenture to which it was originally attached, it is
called a detachable warrant.
Right: warrants entitle to purchase ordinary shares.
Therefore, the holders of warrants are not the
shareholders of the company until they exercise their
options.
 Reasons for issuing warrants

Generally, three reasons are cited for issuing warrants:

Sweetening debt: warrants help to make the issue of
equity and debentures attractive.
Deferred equity financing: warrants provide a company
an opportunity for deferred equity financing where in
shareholders can exercise price if market price in future
does not rise.
Cash inflow in future: company obtains cash when
investors exercise their warrants. No cash inflow takes
place when convertible debentures were offered.
Recap the differences between warrants
and convertible Debenture

Warrants bring in new capital, while convertibles do

not.
Most convertibles are callable, while warrants are not.
Warrants typically have shorter maturities than
convertibles, and expire before the accompanying debt.
Warrants usually provide for fewer common shares
than do convertibles.
Bonds with warrants typically have much higher
flotation costs than do convertible issues.
Bonds with warrants are often used by small start-up
firms. Why?