...continued
Application examples
Example 10
[Refer: paragraphs B47–B50]
Investor A and two other investors each hold a third of the voting rights of
an investee. The investee’s business activity is closely related to investor A.
In addition to its equity instruments, investor A also holds debt instruments
that are convertible into ordinary shares of the investee at any time for a
fixed price that is out of the money (but not deeply out of the money). If the
debt were converted, investor A would hold 60 per cent of the voting rights
of the investee. Investor A would benefit from realising synergies if the debt
instruments were converted into ordinary shares. Investor A has power over
the investee because it holds voting rights of the investee together with
substantive potential voting rights that give it the current ability to direct
the relevant activities.
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