Convertible bonds are hybrid securities that provide a guaranteed income, like traditional bonds, while also offering the flexibility of a conversion option at maturity. This allows investors to transform them into the issuing company's stock when favorable, giving the debt equity-like returns.
Somewhere in the middle are your convertible debentures. Usually they are junior to the senior debt, so they have higher risk, and therefore, it's usually more costly to the issuer than the senior debt.
In 2023, major Chinese companies like Alibaba and JD.com are increasingly turning to dollar-denominated convertible bonds, collectively issuing over $8 billion this year after a post-pandemic lull.
As borrowing has become more expensive, larger companies have started exploring alternative financing options, which has led to a notable rise in the popularity of convertible bonds.
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