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HYBRID FINANCE
What is hybrid finance in the context of corporate capital structure?
Hybrid finance refers to financial instruments that combine features of both debt and equity, such as convertible debentures, preference shares, and perpetual bonds, offering characteristics of both fixed-income securities and ownership stakes.
What is the primary advantage of hybrid finance over pure debt financing?
It reduces financial distress risk while maintaining tax benefits.
How do convertible debentures function as a hybrid instrument?
Convertible debentures start as debt instruments paying fixed interest and can be converted into equity shares at a predetermined price or ratio on a specified date, blending debt security with potential equity upside.
What is a 'trigger event' in the context of contingent convertible bonds (CoCos)?
A predefined capital ratio breach that activates conversion or write-down.
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