MCBs useful option for fund raising but yet to catch on: market watchers

They are not for everyone and may be a particularly tough sell in a difficult economic climate, they add; there are also significant risks, for investors

Published Tue, Aug 10, 2021 · 05:50 AM

Bonds

Singapore

SHAREHOLDERS of Singapore Airlines (SIA) last year found themselves having to do some reading about a relatively uncommon instrument: mandatory convertible bonds (MCBs). With a need to raise a large amount of capital to survive the pandemic times, the national carrier turned to a hybrid debt and equity instrument that would allow it to conserve cash for longer.

The MCBs turned out to be unpopular among investors, with low subscription rates. Fortunately, SIA's controlling shareholder Temasek took up the rest of the issue. But corporate finance experts The Business Times (BT) spoke to said MCBs are not for everyone and may be a particularly tough sell in a difficult economic climate.

Unlike the more commonly used convertible bond, which is converted at the option of the bondholder, MCBs are automatically converted upon a maturity date set by the issuer…