Issue Of Preference Shares
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.
Have more questions?
Understanding variable/fixed no. of shares to be issued on conversion of CCPS
Identifying Equity Component of OCPS
Dividend discretionary feature and its impact on valuation
Conversion Option - American Vs. European