Example Bechtle: How Convertible Bonds Work

Last Updated: 5. Dezember 2023By

Last week, the German IT specialist Bechtle, listed in the MDAX and TecDAX, announced the successful placement of a so-called convertible bond (also called convertible bond) with a volume of 300 million euros.

In connection with this event, I received a reader question about what it was all about and how exactly such a convertible bond works. So today we take a closer look at this topic in the final bell.

The coupon rate is lower than with conventional bonds Compared to conventional bonds, the coupon rate on convertible bonds is usually lower (Bechtle offers 2% interest per year in the current case, for example). However, there is one point that makes up for the seemingly low return. Typical for convertible bonds is the so-called conversion right.

That means: At the end of the term you can choose: Do you want your money back, i.e. the paid nominal value? Or should the issuer give you his shares instead, and in a number that is pre-determined?

Exchange ratio and conversion price in focus What is decisive for convertible bonds are the conversion price and the exchange ratio. The exchange ratio tells you how many shares you get for your convertible bond, the conversion price from when it is worth it to choose this option. At Bechtle, the initial conversion price is around 54.99 euros.

Here’s a simplified calculation example: You own convertible bonds of Mustermann AG with a nominal value of 1,000 euros. At the end of the term you can choose whether you would rather have the nominal value or the shares. You should get 20 shares if you choose the second option. That means: The payout in shares is worth it for you as soon as the shares are worth more than 50 euros.

How does the right of choice work in practice? Very simple: You have an indirect stock investment with which major crashes are practically excluded. If the stock price rises, simply choose the payout in shares. If it remains below your expectations, have the nominal value of the bond paid out. The residual risk: At the end of the term the company no longer has money for the repayment.

The chart is similar to the stock – just less steep So a convertible bond is a kind of disguised stock investment with a safety net. That has consequences for the course. It runs similarly to the price of the underlying stock, but not so steeply. Usually the chart follows price increases by about two thirds, price drops are only replicated by a third.

So convertible bonds are ideal if you find a stock company very attractive but are afraid of loss risks. However, you will quickly notice: Convertible bonds are often only available in very large units. โ‚ฌ50,000 or โ‚ฌ100,000 (as in the case of Bechtle) are often the minimum amounts an investor has to invest for the purchase of a single paper.

This restricts the suitability of these investments for private investors unfortunately very strongly. But there is a solution to this problem: convertible bond funds. With these you can invest in convertible bonds with lower amounts in a broadly diversified way. (Final editorial deadline: 05.12.2023 at 17:50)