What is the primary benefit of convertible bonds to issuers?

The primary benefit of convertible bonds to issuers lies in their ability to help achieve lower fixed costs for borrowing. By offering the conversion feature to bondholders, issuers can often obtain a lower interest rate on the bonds compared to traditional non-convertible debt. This is because the option to convert the bonds into equity shares at a later date provides added value to investors, making them willing to accept a lower yield.

This characteristic allows companies, especially those that may be viewed as riskier or in need of flexibility in capital structure, to secure financing at more manageable costs. By minimizing interest expenses, issuers can improve their overall financial health and maintain more liquidity.

While security, interest rates, and taxation might factor into the overall attractiveness of a bond, the significant leverage that convertible bonds provide in reducing a company's cost of capital is what primarily incentivizes issuers to opt for this form of financing.