Ordinary shares, preference shares, loan stocks and bonds. These are common types of financial instruments. Sometimes, you see the word “convertible” and/or “redeemable” attached to the financial instrument (except for ordinary shares). Examples:
Redeemable convertible preference shares (RCPS) or
Redeemable convertible unsecured loan stocks (RCULS).
Redeemable means the financial instrument can be redeemed for cash. The company will pay the holder the nominal amount of the instrument.
Convertible means it can be converted into ordinary shares. The conversion ratio of how many ordinary shares will be received are set upfront.
So RCPS means the preference share can be redeemed for cash or can be converted into ordinary shares.
Sometimes, there is an additional “C” in the instrument name, e.g. RCCPS. It stands for cumulative. It means that any unpaid dividends this period will be carried forward and added to the next period’s dividends.
The “I” in ICULS stands for irredeemable.
A convertible bond means the bond can be converted into ordinary shares.
If the financial instrument is “Exchangeable”, it means it can be exchanged for another financial instrument.