SECP issues guidelines on convertible debt securities – Journal


ISLAMABAD: To promote different modes of financing and investment, the Securities and Exchange Commission of Pakistan (SECP) has issued a guidance document detailing the mechanisms and elements of issuance of convertible debt securities (CDS).

CDS is a hybrid instrument with both borrowing and equity characteristics. Initially, it is a fixed income security that earns interest and can then be converted into a specified number of shares.

The conversion of a debt security into shares can be done at certain times during the life of the instrument and is generally at the discretion of the holder / investor of the security.

Investors in CDS can benefit from a steady stream of income (coupon payment / profit rate) and principal repayment at maturity, while retaining the option to share potentially higher shares, if the option to conversion is exercised.

There is a worldwide increase in CDS issuance due to the low cost involved.

Around $ 92 billion of convertible securities were issued in the first half of calendar year 2020 globally.

However, Pakistan has not seen any issuance of CDSs by publicly traded companies except for a few banks which have used these instruments to meet their Tier I and II capital requirements.

The guidance document mainly covers the characteristics of CDSs, their advantages for investors, opportunities for issuers, the criteria for issuing them and the steps involved. As part of capital market development, SECP will host webinars to educate potential issuers and other stakeholders about CDS issuance.

Posted in Dawn, April 22, 2021

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