Present and future of convertible bonds market
Russia does not so far have an established market for convertible bonds, i.e. debt securities that can be exchanged for issuer shares. The Bank of Russia has examined rules for issuing such instruments and has drawn a conclusion that it is necessary to update regulation to reflect the needs of issuers and investors.
The first block of amendments to the convertible bond issuance rules was introduced in 2018–2019. However, the issues of these securities were not numerous. Issuers were not flexible enough when setting conversion parameters, while investors were not eager to buy such a complicated product, as it required a more thorough risk-benefit analysis. Moreover, the situation was under the negative influence of macroeconomic uncertainty and the exit of large venture funds from the Russian market.
To improve the attractiveness of convertible bonds, the Bank of Russia proposes to set up conditions for their use at the pre-IPO stage (in this case, issuers will be able to raise finance on more beneficial terms before going public) and to consider the possibility of switching from the fixed conversion ratio to the variable one. These changes will allow companies to better adapt this instrument for their needs and market environment.
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