Convertible bonds in Spain: An exotic security

This note is a comprehensive study of any exotic variety of convertible bonds very popular in Spain. The Spanish convertible bonds are different from the American. First, the conversion price of the shares is not fixed in pesetas, but is defined as percentage reduction of the average share price over a period of several days before conversion. Second, the conversion option can only be exercised at two or three different dates. Third, the bonds are not callable. Fourth, the first conversion opportunity is only two or three months after the subscription date. Convertible bonds have been increasingly popular in Spain over the period 1984 to 1988. Issues of convertible bonds have accounted for more than $12 billion in that period. In some of these years, issues of convertible bonds accounted for more than three times the issues of new shares.