The participating bond represents a special kind of Industrial bond It is also called a profit bond. Your special right consists in the fact that the investor shares in the profits of the company. Profit sharing can basically be regulated in the following way:
• As with a partial bond, there is initially a fixed interest rate, which is to be understood as the minimum interest rate. In addition, an additional interest rate has been agreed, for which there is, for example, half a percent additional interest for each percent of the scrip dividend.
• The investor receives a profit-related interest rate that is usually capped, ie it does not represent a fixed rate of interest.
The profit bond is therefore subject to risk. In years with heavy losses, investors only receive the minimum interest rate or no interest at all.
According to stock corporation law, a three-quarters majority of the general meeting is required for the issue of participating bonds. According to Section 221 of the German Stock Corporation Act (AktG), shareholders have subscription rights. The reason for this regulation is to be seen in the fact that the profit entitlements of the shareholders are influenced by the profit participation of the holders of bonds. In contrast to Convertible bond the income bond does not grant any conversion or subscription rights to shares.
The income bond can be issued if the accommodation options for ordinary bonds are difficult and there should therefore be a special incentive for the provision of capital. In Germany, the income bond is a financing alternative that is only used in individual cases.