What happens to a company's common stock when its convertible bonds are converted by bondholders?

When bondholders convert their convertible bonds into common stock, they are essentially trading their debt securities for equity in the company. This conversion process involves the issuance of new shares of common stock, thereby increasing the total number of outstanding shares in circulation.

The convertible bonds are a form of debt that gives bondholders the right to convert their bonds into a predetermined number of shares of common stock. As a result, when this conversion occurs, the company issues new shares to these bondholders. This action enhances the equity base of the company, often leading to a dilution of existing shareholders' equity percentages, as there are now more shares existing in the market.

Thus, this transformation from convertible bonds to common stock is a direct cause of an increase in the number of outstanding shares, as the company is effectively granting new ownership stakes to the bondholders who convert their bonds.