Convertible bonds in Spain: A different security
Spanish convertible bonds are different from American convertible bonds. First, the conversion price is not fixed in pesetas, but is defined as a percentage discount off the average share price over a number of days before conversion. Second, the conversion option can be exercised at only a few (usually two or three) different dates. Third, the first conversion opportunity is usually only two or three months after the subscription (issue) date. In the period 1984 to 1990, 248 issues of convertibles accounted for 1.9 trillion pesetas. In this period, companies issued more convertibles than new shares (1.4 trillion pesetas). Several formulas for valuing Spanish convertible bonds are derived using option theory. Convertibles have been undervalued by an average of 21.6% on average. The expropriation effect in the period 1984 to 1990 amounts to 125 billion pesetas.
|Date of creation:||15 Mar 1996|
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