Convertible debentures are hybrid corporate debt instruments that give the holder the right — or in some structures, the obligation — to convert the debenture into equity shares of the issuing company at a pre-agreed conversion price and conversion ratio, either at maturity or at specified intermediate dates. They combine the fixed-income characteristics of a debenture (periodic coupon payments, defined tenure, and priority over equity in liquidation) with the potential for equity upside if the company's share price appreciates above the conversion price. There are two primary types: Fully Convertible Debentures (FCDs — mandatorily convert to equity at a specified date), and Optionally Convertible Debentures (OCDs — holder has the option to convert or receive cash redemption). Partly Convertible Debentures (PCDs) have one portion converting to equity and the other redeemed as debt. In India, SEBI regulates convertible debenture issuances under its ICDR Regulations — setting minimum conversion price thresholds and disclosure requirements. For investors, convertible debentures are attractive when the issuing company's equity is expected to appreciate significantly — the conversion option adds embedded equity value that is typically reflected in a lower coupon rate than a comparable plain NCD. Foreign Currency Convertible Bonds (FCCBs), a variant issued in overseas markets, have been widely used by Indian companies to raise USD capital from international investors.
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