DEBENTURE pptx ll Types of debentures/ Introduction to debentures

DEBENTURE pptx ll Types of debentures/ Introduction to debentures

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  DEBENTURE D GAURAV TANWAR 223517 GAURAVKUNWAR 223404
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  INTRODUCTION TO DEBENTURE The word‘debenture’ itself is a derivation of the Latin word ‘debere’ which means to borrow or loan. Debentures are written instruments of debt that companies issue under their common seal. They are similar to a loan certificate.
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  FEATURES OF DEBENTURE •Debentures are instruments of debt, which means that debenture holders become creditors of the company • They are a certificate of debt, with the date of redemption and amount of repayment mentioned on it. This certificate is issued under the company seal and is known as a Debenture Deed • Debentures have a fixed rate of interest, and such interest amount is payable yearly or half-yearly • Debenture holders do not get any voting rights. This is because they are not instruments of equity, so debenture holders are not owners of the company, only creditors • The interest payable to these debenture holders is a charge against the profits of the company. So these payments have to be made even in case of a loss.
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  PROS AND CONS •A debenture pays a regular interest rate or coupon rate return to investors. • Convertible debentures can be converted to equity shares after a specified period, making them more appealing to investors. • In the event of a corporation's bankruptcy, the debenture is paid before common stock shareholders. PROS • Fixed-rate debentures may have interest rate risk exposure in environments where the market interest rate is rising. • Creditworthiness is important when considering the chance of default risk from the underlying issuer's financial viability. • Debentures may have inflationary risk if the coupon paid does not keep up with the rate of inflation. CONS
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  Based on Priority •First Mortgage Debentures • Second Mortgage Debenture Based on Convertibility • Convertible Debentures • Non-convertible Debentures TYPES OF DEBENTURE Based on Security • Secured Debentures • Unsecured Debentures Based on Permeance • Redeemable Debentures • Irredeemable Debentures Based on Negotiability • Registered Debentures • Bearer Debentures
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  1. Types ofDebentures on the basis of Security a) Secured Debentures: These debentures carry a charge on some assets of the issuing company. In case the company fails to repay the debt, its assets will be sold off to pay creditors. b) Unsecured Debentures: These debentures are very risky for investors. This is because they do not carry any security or charge on the company’s assets. The company only promises to pay the debt amount and interest. Its assets are not liable for attachment in case of its failure to repay. 2.Types of Debentures on the basis of Convertibility a) Convertible Debentures: These debentures convert into equity or preference shares after a specific period of time. This conversion may be either compulsory or optional at the debenture holder’s discretion. Further, it may be either fully convertible or partly convertible. In terms of the value of the shares that debentures convert into, they may be at par or even at premium or discount. b) Non-convertible Debentures: On the contrary to convertible debentures, non- convertible ones remain debentures. They are not convertible into shares.
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  3. Types ofDebentures on the basis of Permanence a) Redeemable Debentures: These debentures are redeemable on a specified date. For example, if a debenture’s maturity period is 5 years, it becomes redeemable on the expiry of 5 years. These 5 years will start from the date of issue of the debenture. b) Irredeemable Debentures: Irredeemable debentures do not have a specific maturity date. They last throughout a company’s lifetime. Thus, the company redeems them only when it faces liquidation. 4. Types of Debentures on the basis of Negotiability a) Registered Debentures: As the name suggests, the details of these debenture holders are registered in the company’s records. Only the debenture holders can redeem these debentures. Hence, they are not freely transferable. They can be transferred only if relevant provisions of the Companies Act, 2013 are fulfilled. b) Bearer Debentures: Companies do not register details of debenture holders in this case. They can be redeemed by the person owning them, without their identity being checked. This happens because these debentures are freely transferable. Thus, anybody can sell and buy them from their holders.
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  5. Types ofDebentures on the basis of their Priority a) First Mortgage Debentures: As the name suggests, companies repay these debentures first. Debenture-holders get their money before all others in their category. b) Second Mortgage Debentures: These debentures are repaid only after the first mortgage debentures are satisfied.
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  Thank you very much!