Participation certificates

High interest rates against high risk, because regardless of whether they are equity- or bond-like: with participation certificates, investors participate in the company's results, even if they are negative.
 

Profit participation certificates are a mixture of shares and bonds. They entitle the holders to profit-related interest, repayment or loss participation, but no voting rights.

Investors as capital providers receive a return on their investment from the issuing companies, the capital borrowers, which is regulated in the terms and conditions of the profit participation certificates. For companies, profit participation certificates are a mixture of equity and debt capital on the balance sheet.

Depending on the repayment conditions, profit participation certificates are referred to as equity-like or bond-like. There are no standards defined by the legislator or the stock exchanges for participation certificates. Every detail can be individually adapted by the issuers to their respective financing needs.

Profit-depend interest rates

The interest rate can vary accordingly. As a rule, the distribution is linked to the result of the company. It is possible, for example, to pay interest on the nominal amount at a fixed percentage rate - as long as the net income for the year is sufficient to service the holders of the profit participation certificates. In addition, there are often profit-related components.

The maturities can also be regulated differently. Endless issues with cancellation rights and notice periods for investors and borrowers are common, usually with a minimum term. However, there are also profit participation certificates with a fixed maturity. After termination or regular maturity, investors receive back their paid-in capital, the book value of the profit participation certificate - except in the case of accumulating profit participation certificates or a loss participation.

As the company's results have a direct impact on the distributions and the amount to be repaid to the investors, participation certificates are generally more risky than bonds.

In addition, participation certificates are generally subordinated. This means that in the event of insolvency, investors will only be serviced after the claims of other debt capital creditors have been met.

Issuers must publish the exact profit participation conditions with regard to profit dependence, loss participation, term or notice periods, repayment modalities and subordination in the securities prospectus. Ongoing trading

Participation certificates can be traded on the stock exchange, i.e. there is a market price. Accrued interest is not calculated for participation certificates, they are listed flat, instead the accrued interest is reflected in the market price. As with shares, interest payments are deducted from the price on the day after they are distributed.

May 2019, Deutsche Börse AG.