perpetual hybrid securities(1)

8/7/2019 PERPETUAL HYBRID SECURITIES(1)

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HYBRID SECURITY

A security that combines two or more

different financial instruments.

Hybrid securities generally combine both

debt and equity characteristics.

The most common example is a convertible

bond.


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Preferred stock or Preference Shares

was the first type of a hybridsecurity offered in the market place.


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TYPES OF SECURITIES

Convertible Securities

Preference shares

HYBRIDS


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Convertible

Securities

These are issued as bondswith the option to be

converted into shares.Typically, these securitieshave a set interest paymentuntil the conversion. The

convertible security holderdetermines if and when toconvert the bond to equitybased on that companys

common stock price. In allother cases, the companyretains the right to determinewhen the conversion occurs.

Preferenceshares

HYBRIDS


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Convertible

Securities

Preference equity redemptioncumulative stock (PERCS)

shares can be converted forshares of common stock in theunderlying company atmaturity. If the underlyingcommon shares are trading

below the PERCS strike price,they will be exchanged at a rateof 1:1; but if the underlyingcommons are trading above

the PERCS strike price, commonshares are exchanged only upto the value of the strike price.

PreferenceShares

HYBRIDS


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Convertible

Securities

Preference shares andconvertible debt securities,but are structured slightlydifferently to meet the needsof investors. Thecharacteristics that changefrom security to security are

the type of interest/dividendpayments, a fixed or variablematurity date, and its price.However, all are similar inthat they have a combinationof debt and equitycharacteristics, which are setup to meet the specific needsof investors.

Preference

shares

HYBRIDS


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FEATURE

Perpetual in nature with no maturity orredemption and are callable only at the optionof the company.

Allows the securities to be counted as debt fortax purposes and as equity for ratings.

Pay a higher coupon than bonds with a fixed

maturity because they rank below senior andsubordinated debt in the repaymentobligations of a company.


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TRADITIONAL HYBRID

Traditional hybrids were usually structured in a way thatleads the securities to react to the underlying share price.Although each has individual characteristics, typically:

they have a set dividend until conversion.

the conversion might occur at a number of dates.

they are usually issued at a similar price to the underlyingshare.

they convert at a set ratio. e.g. 1 hybrid converts into 1underlying share.


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LATEST STYLE OF HYBRIDS

Most of the hybrid securities issued recently are verybond-like. Although each has individual characteristics,typically:

they have a set dividend rate for a 5 year period ('reset'period)

are issued at $100

the holder has the ability to take the new 'reset' terms,

redeem the face value or convert the holder can convert into the shares at a discount to

the current ordinary share price e.g. 5%

the conversion ratio is into a dollar amount of shares.

e.g. $100 worth of the underlying equity


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Which is the first Company toWhich is the first Company to

launchlaunch the maiden offer ofthe maiden offer ofPerpetual Hybrid Securities byPerpetual Hybrid Securities by

an Indianan Indian Corporate??????Corporate??????


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TATA STEELS HYBRID SECURITIES

Tata Steel raised Rs.1500 crore through issuing perpetual hybrid

securities to part-fund its growth plan.

This is an innovative long-term funding with equity features butwithout the associated economic dilution helps to diversify

financing options for the company enhancing capital sructure

of the company.

Tata Steel has kept the distribution rate at 11.8 per cent per

annum with a step up provision if the securities are not called

after 10 years,


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Reason for success

The blue-chip profile of Tata Steel, and the

relative value available to investors on account

of the subordination and hybrid nature of the

instrument, were the main reasons behind the

success of the issue.


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Advantage

These securities allow higher flexibility for

corporate financing while reducing capital

costs for issuers.

It adds to the investors' choices for portfolio

allocations


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Few Facts

Tata Steels issuance of perpetual hybrid

securities show companies are seeking

unprecedented ways to raise money with

Indian bond sales down 42% this year to Rs

274 billion and the nations Sensitive Index

falling 13% to become Asias worst equity

benchmark.


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conclusion


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THANK YOU Arijit Ghosh

Avinanda Dey Sarkar

Dipsha Ghosh

Jhumur Chakraborty

Pinak Goswami

Priyanka Dutta

Ria Talukdar

Sayam Roy Chowdhury

Suvankar Nandi

Vikash Gupta

perpetual hybrid securities(1)

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