Corporate bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. When one buys a corporate bond, one lends money to the "issuer," the company that issued the bond. In exchange, the company promises to return the money, also known as "principal," on a specified maturity date. Until that date, the company usually pays you a stated rate of interest, generally semiannually. While a corporate bond gives an IOU from the company, it does not have an ownership interest in the issuing company, unlike when one purchases the company's equity stock.
MEANING OF CONVERTIBLE DEBENTURES
These debentures can be termed as a debt security or loan. They can be converted into equity shares after a stipulated period. The conversion of debentures into equity shares is at the option of the holder. However, under special circumstances, the issuer holds such conversion rights.
ABOUT CONVERTIBLE DEBENTURES
Business firms issue such securities to avail tax benefit. The company can get the advantage of the tax deduction on the interest paid to the investors. This reduces the cost of capital of the company. However, at the time of conversion, the company issues additional shares. This brings a decline in the value of the equity shares due to stock dilution. There are many types of debentures which a company can issue. Two popular types of them are:
These are debentures in which the company requires an interest-bearing loan. Once the stipulated time passes, it can be converted into equity shares. The interest on these debentures is generally low. The debenture holders can opt for receiving the interest and principal amount at the time of maturity. Alternatively, they can opt for converting the debentures into equity shares
TYPES OF CONVERTIBLE DEBENTURES
FULLY CONVERTIBLE DEBENTURES
Under these securities, the whole value of debentures is convertible into equity shares of the company. The ratio of conversion is determined at the time of issue of these securities.
PARTLY CONVERTIBLE DEBENTURES
These securities differ from fully convertible ones. Under them, only some part of the debentures is eligible for conversion into equity shares. Again, the ratio of conversion is determined at the time of issuance of these securities. A part of the debt can be converted into equity shares after the approval of debt holders.
Non Convertible Debentures (NCDs)
Investors want investment options that manage liquidity and risks while offering substantial returns. Debentures are long-term financial instruments issued by a company for specified tenure with a promise to pay fixed interest to the investor. Debentures are of two types, namely convertible debentures and non-convertible debentures (NCD).Non-convertible debentures (NCD) are those which cannot be converted into shares or equities. NCD interest rates depend on the company issuing the NCD.
NCD investment can be held by individuals, banking companies, primary dealers other corporate bodies registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs). Invest in secured NCD to get multiple investment benefits.
NCD & BONDs
Bonds/ NCD’s are the products offered by various private and public sector corporates through public issues or on private placement basis. Bonds issued under specified categories will also offer Tax free returns as well as Tax exemption to the investors. The coupon rate offered varies based on the rating of the corporate raising the debentures. Being long term, these bonds are listed on exchange and can be traded on the exchange on listing if invested in Demat mode.
|Issue Name||Opening Date||Closing Date||Price (Rs.)|
|Indiabulls Consumer Finance Limited||May 30, 2019||Jun 21, 2019||1000|