Non-convertible Preference Shares
Non-convertible preference share means the share will not be converted into equity shares but will be redeemed as preference share only. The shares that cannot be converted to equity are referred to as non-convertible shares. These can also be redeemed. Any public company, public sector undertaking, or statutory corporation which makes or proposes to make an issue of non-convertible redeemable preference shares in accordance with SEBI (Issue And Listing Of Non-Convertible Redeemable Preference Shares). The holders of this kind of shares have no right to convert their preference shares into equity shares. Investors who have been in the stock market for longer than most go after preference share types. The dividends earned on these shares are significantly higher than ordinary shares.
Convertible preference share may also have cumulative or participating rights. Convertible Shares are those shares that can be converted in the equity shares whereas non-convertible shares are those which cannot be converted in the form of equity shares. They are issued as preference shares and they remain the preference shares. This kind of preferred stock is ideal from the viewpoint of the investor. Non-convertible preference shares are not converted into equity stock. Non-convertible preference shares may also be redeemable.
Convertible preference shares have a similar concept of convertible debentures. These shares possess an option or right whereby they can be converted into an ordinary equity share at some agreed terms and conditions. Non-convertible simply does not have this option but has all other normal characteristics of a preference share.
Shareholders of such shares have the option to convert the common shares to preferred shares. These shares are opted by investors who wish to receive preferred share dividends as well as want to benefit from an increase in the common shares. In the case of Non Convertible Preference Shares, shareholders of these shares do not hold the right to convert to the issuer’s common shares. For shareholders having preference shares with a callable option, the issuing company holds the right to call in or buy back the stocks at a predetermined price after a set date.