Convertible bond

A bond the holder can exchange for a fixed number of the issuer's shares. It pays a lower coupon than a plain bond because the holder also owns an option on the share price, and Indian companies have issued them abroad as foreign currency convertible bonds.

Take a ₹1,000 bond convertible at ₹250 a share. It converts into 4 shares. With the share at ₹300 the conversion value is ₹1,200, so the bond trades at least there. With the share at ₹150 it's worth only ₹600 as shares and trades on its value as a bond instead.

For the issuer the cheap coupon has a cost in dilution if the shares rise and a refinancing problem if they don't. Several Indian companies that issued convertible bonds in the 2000s faced repayment when their share prices fell far below the conversion price, and had to find the cash. In diluted earnings per share the potential shares are added to the count and the interest saved, after tax, is added back to profit.

Before anything else, know the conversion price.