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DEBENTURES

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									DEBENTURES

**** CHAITANYA
           DEBENTURES


A debenture is an instrument of debt
executed by the company acknowledging
its obligation to repay the sum at a
specified rate and also carrying an interest.
                 Attributes
• Issued by the company in the form of a
  certificate of indebtedness
• It generally specifies the date of redemption,
  repayment of principal and interest on specified
  dates
• Despite Profit/Loss Company has to pay interest
• On Liquidation they are paid before
  shareholders
        Types of Debentures
Basis of
• Convertibility of the Instrument
  – Convertible Debentures
  – Non Convertible Debenture
  – Optionally Convertible Debenture
• Security of Debentures
  – Secured Debenture
  – Unsecured Debenture
             CRISIL Ratings
• High Investment Grades
  – AAA: Highest Safety
  – AA: High Safety


• Investment Grades
  – A: Adequate Safety
  – BBB: Moderate Safety


• Speculative Grades
  – B High Risk
  – C Substantial Risk
  – D In Default
        DEBENTURES SAFE?

•   Share Market Risky
•   Ketan Parekh Scam-2002
•   Harshad Mehta Scam- 1992
•   Ambuja Cements in 80’s - Ambani
•   Debenture Holders No right to vote
•   No Dilution of Control
             Cost of Debt
 Which is the Costlier Means of capital
  a. Equity Capital
  b. Debt capital


 The answer is
   Option 2 – Debt Capital


 Why???
            Cost of Debt         contd….


•   Loans provide higher EPS
•   Profit Divided among lesser Shareholders
•   Losses not shared
•   Debt is favorable as long as
    – Rate of Return > Cost of Debt
• Infosys is a Debt Free Company
• Depends on the Company Philosophy

								
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