RegulationAccounting StandardsConvertible bonds may lose shine

Convertible bonds may lose shine

Companies with surging share prices suffer blows to their reported profits because of the equity element in the convertible bonds

The use of convertible bonds has been thrown into doubt, after Simon Ball,
the finance director of 3i, admitted the venture capital group was closely
monitoring the future use of the instruments because of IFRS.

Convertible bonds, which allow companies to make returns to investors with
cash or shares, have always been a popular way of raising capital because of
their flexibility.

The fair value requirements of IFRS, however, mean that companies with
surging share prices suffer blows to their reported profits because of the
equity element in the convertible bonds.

3i, which delivered a 40% increase in its share price during the financial
year, suffered a £78m hit to pre-tax profits of £852m for the year ended 31
March 2006 because of the IFRS changes. This prompted Ball to say that the FTSE
100 private equity player would review the use of convertible bonds in the
future.

‘It [the convertible bond] gives us flexibility around capital management
going forward. For the moment, we’ve chosen to retain that flexibility, but it’s
something that we keep under constant review and will do right through to the
conversion period,’ Ball said.

Related Articles

Demystifying GDPR for accountants

Accounting Standards Demystifying GDPR for accountants

6d Ellen Temperton, Lewis Silkin
EY fined £1.8m over Tech Data audit

Accounting Standards EY fined £1.8m over Tech Data audit

2m Emma Smith, Managing Editor
The great professional services shake-up

Accounting Standards The great professional services shake-up

3m Fergus Payne, Lewis Silkin
What do clients actually want from an accountant?

Accounting Standards What do clients actually want from an accountant?

4m Emma Smith, Managing Editor
Accountants shouldn’t neglect hybrid mismatch anti-avoidance rules

Accounting Standards Accountants shouldn’t neglect hybrid mismatch anti-avoidance rules

4m Alison Conley
Membership of the accountancy profession on the rise

Accounting Standards Membership of the accountancy profession on the rise

5m Alia Shoaib, Reporter
The real price of mates' rates in the provision of professional services

Accounting Standards The real price of mates' rates in the provision of professional services

5m DAC Beachcroft
IASB overhauls insurance accounting with issuance of IFRS 17

Accounting Standards IASB overhauls insurance accounting with issuance of IFRS 17

7m Alia Shoaib, Reporter