Hybrid securities or hybrid shares have been very popular over the last few years in Australia. They are a complex security that combines some amount of equity (stock) and debt (bond) together.
A hybrid typically provides a variable interest rate return. Like a bond, once purchased the investor will receive interest payments on a regular basis. At maturity the investor either receives the face value of the investment, or alternatively the face value may be converted to ordinary shares in the issuers company.
Sometimes that choice is under your control, sometimes it’s the issuing company.
Some cases, like reset hybrids, roll over or reset at a predetermined date (usually 5 years). At the time of reset, the issuer might adjust the coupon rate, next reset date, etc. As a holder of this security, if you choose to leave at that time, your investment in the hybrid is converted into ordinary shares of the issuer based on a formula.
Hybrids are sometimes very complex, with special options, rules and clauses. The risk profile of hybrids is quite different than stocks or bonds. The head of ASIC has even called them ‘ridiculous’ and have been banned for retail investors in many other markets such as the UK.