Issue Of Preference Shares
Lifecycle
Common categories of Preference Shares include – Compulsorily Redeemable, Compulsorily Convertible, Optionally Convertible, Cumulative, Non-cumulative, Discretionary, Non-Discretionary, Allied Shareholders Agreements. Preference shareholders get preference in dividend and winding up. Typically, CCPS is presumed as equity, however, it is a myth. Its nature depends on variability/fixed no. of shares to be issued on conversion. Similarly, OCPS requires segregation of equity and debt component. In both of the cases, valuation exercise may be complex on account of cumulative and non-cumulative nature of dividend, a discretionary feature of the declaration of dividend, and European or American conversion option.
Hybrid Instrument
- Redeemable & Convertible Features
- Discretionary Dividends
- Puttable Options
- Preemptive Rights
- Future Conversion Price
Characteristics
- Liquidation Preference
- Cumulative & Non-Cumulative Dividends
- Compulsorily Convertible
- Optionally Convertible
- Callable Feature
Have more questions?
Understanding variable/fixed no. of shares to be issued on conversion of CCPS
Identifying Equity Component of OCPS
Valuation Complexities
Dividend discretionary feature and its impact on valuation
Conversion Option - American Vs. European
Valuation Complexities
High growth potential
No revenues and operating losses
Uncertain call future potential
Primary asset = IP
Expected ESOP
Negative bottom line
Private entity (non-comparable listed entities)
How can we help you?
Treating Compulsorily Convertible Preference Shares as Liability and estimating relative interest rates
Observing Preference Dividends and Market Interest Rates
Treating Cumulative and Non-Cumulative Preference Share
Using the Binomial Model and Black & Scholes model to estimate the value of options
Dissecting Debt and Equity Components
Calculating representative Beta
How can we help you?
Treating Compulsorily Convertible Preference Shares as Liability and estimating relative interest rates
Treating Cumulative and Non-Cumulative Preference Share
Dissecting Debt and Equity Components
Observing Preference Dividends and Market Interest Rates
Using the Binomial Model and Black & Scholes model to estimate the value of options