Redemption Events – Bond Maturies, Early Redemptions, Voluntary and Partials

Redemptions can be either mandatory or voluntary in nature. A vast majority of redemptions are when a bond reaches its maturity date and the capital is returned to the shareholder. For example, if you hold HSBC BANK 16.4% MTN 31/08/2009 USD, then this will mature on 31st August 2009, pay in US dollars, at par (price paid). Interest is paid annually at 16.4%.

Other types of mandatory redemption include:

Partial Redemptions, where part of the bond is redeemed
Lottery Redemptions, where the company decides to redeem a portion of the bonds issued by means of a random lottery
Early redemption, where the company makes a decision to mature the bond early
Voluntary redemptions, where the company will offer shareholders the choice of redeeming their bonds, or keeping them to redeem at a later date.

If over 75% of a redeemable class of share has already been redeemed, the company if they wish can compulsory redeem the remaining 25%.

There are two basic types of shares that are commonly redeemed. These are loan stock (debt) and convertible preference shares (equity).

Loan stocks (Gilts and corporate bonds) are compulsory redeemed on their maturity date.

You should never be disadvantaged by an early redemption, i.e. you should also receive your accrued interest up until the date of the redemption.

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