Presentation on Debenture

8/9/2019 Presentation on Debenture

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Presentation onPresentation on

DebentureDebenture

Presented BY:Presented BY:

SARVESH PANDEYSARVESH PANDEYPallabPallabPradeepPradeepPratisthaPratistha


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IntroductionIntroduction

A Debenture may be defined as anA Debenture may be defined as anacknowledgment of a debt or loan raised by aacknowledgment of a debt or loan raised by acompany.company.

A Debenture is the basic debt instrument whichA Debenture is the basic debt instrument whichmay be issued by a borrowing company.may be issued by a borrowing company.

A loan raised by a company may be divided inA loan raised by a company may be divided inlarge number of part, each part being called alarge number of part, each part being called aDebenture.Debenture.


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Characteristics of DebenturesCharacteristics of Debentures

Debenture is a creditors ship Security.Debenture is a creditors ship Security.

Company has to pay interest to DebentureCompany has to pay interest to Debenture

holders at the agreed rate.holders at the agreed rate.

Debenture holder do not have any control overDebenture holder do not have any control overthe management of the company.the management of the company.

In case of windingIn case of winding--up of a company, the amountup of a company, the amountof debenture will be repaid before any amount isof debenture will be repaid before any amount ispaid to shareholder.paid to shareholder.


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Types of DebentureTypes of Debenture

In the Redemption point of viewIn the Redemption point of view

1.1. Redeemable DebentureRedeemable Debenture

2.2. Irredeemable DebentureIrredeemable Debenture

In the Security point of viewIn the Security point of view

1.1. Mortgage DebentureMortgage Debenture2.2. Simple DebentureSimple Debenture


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In the Record point of viewIn the Record point of view

1.1. Registered DebentureRegistered Debenture

2.2. Bearer DebentureBearer Debenture

In the Convertible point of viewIn the Convertible point of view

1.1. Convertible DebentureConvertible Debenture2.2. NonNon--Convertible DebentureConvertible Debenture

In the Priority point of viewIn the Priority point of view1.1. First DebentureFirst Debenture

2.2. Second DebentureSecond Debenture


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Guidelines of SEBI for issuingGuidelines of SEBI for issuing

DebentureDebenture Where FCDs/PCDs are issued by A NewWhere FCDs/PCDs are issued by A New

Company having 5 Year track record ofCompany having 5 Year track record ofconsistent Profit.consistent Profit.

Not more then 20% of the total capital raised byNot more then 20% of the total capital raised bythe Nonthe Non--Government public Limited Company.Government public Limited Company.

Issue of Debenture with maturity of18 month orIssue of Debenture with maturity of18 month orless are exempt from the requirement ofless are exempt from the requirement ofappointment of Debenture Trustee or creating aappointment of Debenture Trustee or creating aDebenture Redemption Reserve (DRR).Debenture Redemption Reserve (DRR).


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Advantages of DebenturesAdvantages of Debentures

Advantages to the CompanyAdvantages to the Company

1.1. Debenture is one of the best source of LongDebenture is one of the best source of Long--

Term Fund to a Company.Term Fund to a Company.

2.2. The interest on Debenture is TaxThe interest on Debenture is Tax--DeductibleDeductibleexpense.expense.

3.3. A Company can trade on equity by mixing ofA Company can trade on equity by mixing ofDebentures in its Capital Structure and therebyDebentures in its Capital Structure and therebyincrease its earning per share.increase its earning per share.


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Advantages to InvestorsAdvantages to Investors

1.1. Debenture provide a Fixed , regular and stableDebenture provide a Fixed , regular and stablesource of Income.source of Income.

2.2. An Investor can Sell or Mortgage his instrument toAn Investor can Sell or Mortgage his instrument toobtain Loan from Financial Institution.obtain Loan from Financial Institution.

3.3. Many investor prefer Debenture because of aMany investor prefer Debenture because of a

Definite Maturity Period.Definite Maturity Period.


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Disadvantages of DebentureDisadvantages of Debenture

Disadvantages to the CompanyDisadvantages to the Company

1.1. The Fixed Interest charge and Repayment ofThe Fixed Interest charge and Repayment of

Principal amount on maturity are legalPrincipal amount on maturity are legalobligation of the Company.obligation of the Company.

2.2. The use of Debt financing usually increase RiskThe use of Debt financing usually increase Risk

in the Firm.in the Firm.

3.3. Cost of Raising Financing through Debenture isCost of Raising Financing through Debenture isalso high because of High Stamp Duty.also high because of High Stamp Duty.


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Disadvantages to InvestorsDisadvantages to Investors

1.1. Debenture Dont carry any voting right and itsDebenture Dont carry any voting right and itsholder do not have any Controlling Power over Theholder do not have any Controlling Power over Themanagement.management.

2.2. Interest on Debenture is Fully Taxable.Interest on Debenture is Fully Taxable.

3.3. They do not have any claim on the Surplus AssetsThey do not have any claim on the Surplus Assets

and profit of the Company.and profit of the Company.

4.4. The price of Debenture in the market fluctuateThe price of Debenture in the market fluctuate

with the change in the interest rate.with the change in the interest rate.


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CONCLUSIONCONCLUSION

TheThe Firm,Firm, whilewhile designingdesigning thethe capitalcapital

StructureStructure oror PlanningPlanning forfor raisingraising additionaladditionalfundfund mustmust evaluateevaluate allall aspectaspect beforebefore decidingdecidingforfor IssueIssue thethe DebentureDebenture.. TheThe priceprice ofof shareshareandand DebentureDebenture inin thethe marketmarket movemove quitequiteoftenoften inin oppositeopposite directiondirection.. TheThe marketmarket priceprice

reflectreflect whatwhat thethe firmfirm willwill getget onon newnew issueissue ofofthethe securitysecurity..


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Thank youThank you

Presentation on Debenture

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