Why should small business owners issue stocks

Warrant bond

A bond with warrants is an interest-bearing security with a certain number of warrants attached. The warrants can be traded separately from the bond on the stock exchange and entitle the holder of the warrants to purchase a certain number of shares in the issuing company. This combination of bond and subscription rights is intended to offer investors and investors an additional purchase incentive. The bond will not be given in payment when purchasing the shares. The bond will be repaid to the holder at the end of its term at face value. Other names for a bond with warrants are bonds with warrants, bonds with subscription rights or, in the English-speaking world, bond warrants.

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What are the prerequisites and legal conditions for issuing a bond with warrants?

A conditional capital increase at the stock corporation is the basic requirement for the issue of a bond with warrants. Since this affects the rights of the existing shareholders of a stock corporation, the issue of bonds with warrants according to Section 221 (1) AktG must be resolved by the general meeting with a 3/4 majority of the represented share capital. As a rule, bonds with warrants are issued with a term of between 10 and 12 years.

The modalities for the interest payments and repayment of the bond are determined when the bond with warrants is issued. Likewise, the subscription ratio of warrants to shares, the subscription period and the subscription price. A certain number of shares can only be acquired by the warrant holder at the subscription price within the specified subscription period. If the option right is exercised by an investor within the subscription period, the company must offer him new shares and may not issue any old shares. Hence the requirement for a conditional capital increase.

Bonds with warrants can be traded on the stock exchange together with and separately from the warrants. The warrants can also be traded separately from the underlying bond on the stock exchange.

What are the advantages of the warrant bond for companies and investors?

A bond with warrants offers companies the option of cheap financing. The issuing company receives low-interest borrowed capital because, because of the link with the warrants, the interest rate for option bonds is usually lower than for other bonds. If the option to purchase shares is exercised by the bogus holders, this has no negative impact on the company's liquidity. A disadvantage of the bond issue is the exercise time of the option right, which can be individually determined by the subscription right holder within wide limits. The development of equity cannot therefore be determined in advance.

For investors, a bond with warrants is an interesting combination of calculable interest payments and the possibility of being able to acquire shares in the issuing company at a favorable price if necessary. If the share price rises sharply, when exercising the subscription right, shares may be bought well below the current stock exchange listing and resold directly for a quick profit. The level of interest then only plays a subordinate role.