Could someone enlighten me on : why would a company issue zero-coupon convertible bonds at an extremely low conversion price?For example, company ABC's shares are currently trading around $1.00. The company decides to issue say $1mil zero-coupon CBs to some investor at a conversion price of $0.05, and there is no restriction on conversion period, no call option granted to issuer. And upon conversion the investors will effectively control the majority stake of the company.Why would a company issue such a CB? that's effectively a interest-free loan and such a low conversion price would just "encourage" investors to convert to equity at the expense of minority investors ??Any insight is much appreciated!

This is usually a privately placed issue that enables company insiders to take more equity in the company. Highly unethical... but it happens a lot in some markets.

I think the structure you are talking about is a way to force shareholders to increase the number of shares outstanding. Usually there is an onerous coupon step up if a shareholder vote to increase the number of shares outstanding fails. Once the shareholder vote succeeds, the conversion right is automatically exercised and the security disappears. Recent examples are Bank of America (BAC) and Popular (BPOP).