Reverse Convertibles (Share-backed Bond)

Reverse Convertibles (Share-backed Bond)

Equity-linked product with a fixed coupon

Reverse convertibles are bonds that have fixed interest, the coupon, whose success is coupled to the price development of an underlying share. Although this product is also called an equity-linked bond, it actually deals with an investment in shares, albeit with reduced risks and less chance for profit. The base value of a reverse convertible is a share or an index.

The principle behind the share-backed bond: Instead of paying out the bond at its nominal value, the issuer has the right to deliver instead a previously fixed number of the underlying shares. The issuer would decide to deliver the shares when their value is less than the nominal value of the mature bond.