FIXED INCOME · Singapore Investing Glossary

Convertible Bond Singapore

A convertible bond is a corporate bond that gives the holder the right to convert the bond into a pre-determined number of the issuer’s ordinary shares at a fixed conversion price. In Singapore, convertible bonds combine fixed income security — regular coupon payments — with equity upside, making them a hybrid instrument popular with growth companies and sophisticated retail investors on SGX.

This article is for informational purposes only and does not constitute financial advice. Always consult a licensed financial adviser before making investment decisions.

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How Convertible Bonds Work

When you buy a convertible bond, you are effectively buying a regular bond plus a call option on the issuer’s stock. This embedded equity option provides potential upside if the company’s share price rises above the conversion price. If the stock underperforms, you still receive coupon payments and get your principal back at maturity (assuming no default).

Key terms to understand:

• Conversion price: The price per share at which you can convert the bond into equity. Set at a premium to the current share price at issuance (typically 20–40%).
• Conversion ratio: Number of shares you receive per bond upon conversion. = Face value / Conversion price.
• Conversion premium: How much the conversion price exceeds the current market price at issuance. A 30% premium means the stock must rise 30% before conversion is economically rational.
• Parity value: Current market value of shares you would receive upon conversion = Share price × Conversion ratio.

Convertible Bonds on the SGX

Convertible bonds in Singapore are primarily used by small-to-mid-cap companies as an alternative to equity dilution or expensive bank loans. They appear on the SGX in two forms:

• SGX-listed convertible bonds: Tradeable on the exchange like regular bonds. Retail investors can buy and sell through their brokerage accounts.
• Private placements: Issued directly to institutional or accredited investors. Not available to retail investors without secondary market access.

SGX also sees convertible note structures used in SPAC mergers and tech company fundraises. These typically convert at IPO pricing and are not accessible to general retail investors.

Always read the prospectus for conversion mechanics, anti-dilution provisions, and early redemption clauses. For broader bond market context, see our Corporate Bonds Singapore guide.

Pricing a Convertible Bond

A convertible bond has two value components:

• Bond floor (investment value): The bond’s value if you strip out the conversion option — essentially what a straight bond with the same coupon, credit quality, and maturity would be worth. This is the downside protection.
• Conversion value (parity value): The current market value of shares you would receive upon conversion.

The market price of a convertible bond fluctuates based on the stock price relative to the conversion price. When the stock is well above the conversion price (“in the money”), the convertible trades like equity. When the stock is far below the conversion price (“out of the money”), it trades like a straight bond, supported by the bond floor.

This “busted convertible” state is important for Singapore investors to understand — a convertible from a distressed issuer may offer little equity upside and significant default risk, making the bond floor meaningless.

Advantages and Disadvantages

Advantages for investors:

• Downside protection via bond floor — capital preservation if the company underperforms
• Participation in equity upside if the company performs well
• Regular coupon income (though lower than equivalent non-convertible bonds)
• In Singapore, capital gains from conversion and subsequent share sale remain tax-free

Disadvantages for investors:

• Lower coupon than comparable straight bonds — you pay for the equity option
• Conversion premium means the stock must rise significantly before conversion is rational
• Complexity — harder to analyse than a straight bond or equity investment
• Issuer call provisions may limit your upside (issuer forces conversion when share price rises)

Convertible Bonds vs Rights Issues in Singapore

Singapore companies often choose between issuing convertible bonds and conducting rights issues to raise capital. The key differences:

From a shareholder perspective, convertible bonds are less immediately dilutive than rights issues but create overhang — a stock of potential shares that may be issued in the future.

Frequently Asked Questions

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