Date : 10 Dec 2021
Non-Convertible DebenturesTags :
Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment
Why in News?
Several companies, including IIFL Home Finance, Indiabulls Housing Finance, and Edelweiss Financial Services, have announced public issues to raise funds through non-convertible debentures, offering interest rates between 8.25–9.7%.
What are debentures?
- Debentures are long-term financial instruments that acknowledge a debt obligation towards the issuer.
- Some debentures have a feature of convertibility into shares after a certain point of time at the discretion of the owner.
- The debentures which can't be converted into shares or equities are called non-convertible debentures (or NCDs).
What is the risk due to defaults?
- Although NCDs are generally considered safe fixed-income instruments, some recent defaults have made investors cautious.
- NCDs can be either secured by the issuer company’s assets, or unsecured.
- Several issuers issued both a secured NCD and another unsecured one through the same offer document, with different credit ratings.
- The risk is high in the case of unsecured NCDs, even though they offer high-interest rates.