OCABSA Financing: Why Convertible Bonds and Warrants Often Destroy Shareholder Value

What an OCABSA Actually Is and How It Works

OCABSA is shorthand for convertible bonds with share subscription warrants. The package combines short-dated convertible bonds, known as OCA and maturing in less than three years, with longer-dated warrants, or BSA, that give the holder the right to subscribe for shares at a pre-set price. The instrument first appeared in the United States more than 20 years ago and entered Europe around 2015. It is generally used by listed companies that cannot obtain bank credit, cannot carry out a capital increase on good terms, or have weak development prospects.

The appeal for the issuer is speed: the funds that subscribe pay the amounts associated with the bonds at issuance, giving the company rapid access to cash. But subscribers often convert the bonds into shares at a discount to the market price and then sell those shares as quickly as possible. That creates a gain for the subscriber while pushing down the share price of a company that is already in difficulty.

Warrants add a second layer of dilution because exercising them increases the total number of shares and reduces the share of future profits attributable to existing holders. Some OCABSA also include an indemnity clause: if the market price falls below the nominal value of the shares, the issuer may owe the subscriber compensation that can exceed the amount of financing received. France's AMF warned about these risks in a detailed note in July 2020. In response, some issuers have moved toward non-dilutive convertible bonds or cash-settled synthetic convertibles, while Equity Line structures have historically been less penalising for shareholders.

Why OCABSA Structures Turn Into Dilution Engines

Why the funding is fast but fragile

Companies that turn to OCABSA are usually negotiating from weakness. The source describes typical issuers as companies with no bank access, no ability to raise equity in good conditions, or no reassuring development prospects. Those conditions make the structure attractive because cash arrives quickly, but they also mean the issuer has little bargaining power. The cost of that weakness is transferred to the company and its shareholders rather than absorbed by the subscriber.

How subscribers profit at the expense of existing holders

The funds that subscribe to OCABSA are not primarily seeking bond interest. They are seeking the gap between the conversion price and the market price. By converting at a discount and selling quickly, they lock in a spread while creating additional supply in the stock. For an already fragile issuer, this can become a self-reinforcing spiral: the share price falls, conversion and selling remain attractive, and existing shareholders absorb both dilution and price depreciation. The article identifies this as a structural feature of the instrument, not an occasional accident.

What the AMF warning changed

The AMF's July 2020 note highlighted the risks of these vehicles, but the market response has not been a ban. Instead, product design has evolved. Non-dilutive convertibles and synthetic cash-settled convertibles reduce the share overhang by paying the conversion value in cash rather than delivering shares. The source notes that Equity Line structures are statistically less penalising for shareholders, while OCABSA remain concentrated among penny stocks, where the risk of aggressive dilution is highest.

Practical Checks for Investors and Issuers Around OCABSA

• Before investing in a company that has issued OCABSA, check the conversion discount, warrant strike price and total potential share count: the source says these structures often create repeated dilution and selling pressure.
• Treat an issuer's use of OCABSA as a signal that ordinary credit or equity capital was unavailable; the article describes typical issuers as companies with no bank access and weak prospects.
• If the financing includes an indemnity clause, evaluate that exposure separately: the issuer may owe more than the financing amount if the share price falls below the nominal value of the shares.
• For boards considering OCABSA, compare the all-in cost against Equity Line or non-dilutive and cash-settled convertible options, which the article identifies as less penalising for shareholders.