Focus on "death spiral" convertibles – which are
essentially convertibles without a fixed conversion price –
sharpened recently after a bondholder triggered unusual volume
movements in the shares of LionGold and Magnus Energy by converting
its bonds into shares below market price and selling huge
quantities of these converted shares thereafter. In response to the
situation, the Singapore Exchange
("SGX") has released an article to
highlight the risks of such convertible instruments, as well as the
disclosure requirements expected of a listed company intending to
employ such method of financing.
Due to their hybrid nature, convertible instruments are an
attractive form of financing and investment for companies and
investors, respectively. Companies can typically raise relatively
large amounts of financing at the outset since subscribers will pay
a principal amount upfront for the convertibles. Over the term of
the convertible, subscribers may earn interest and can be
