Tata Capital, which even in the most troubled times, when others were harping about lack of investor interest and general apathy to all investment instruments, it managed to close its non-convertible debenture (NCD) issue with a resounding success. That was way back in Feb 09’ when it had managed to raise Rs.1500 crore thro the NCD issue. This success proved that companies with a good brand presence can manage to get investors to part with their money as the bond of trust has already been established.
And now, a new record of sorts has been set by the NCD issue of Shriram Transport, which managed to garner an unbelievable Rs.4500 crore as against the need of Rs.500 crore, that too on the first day itself. The issue will close on 14th August and it would be interesting to see how much amount it did manage to collect.
Enthused by this, there are others now queuing up with their NCD issues. L&T has already announced that it plans to raise Rs.1000 crore via NCDs to meet its capex plans and Dewan Housing too has plans to raise Rs.1000 crore, once again through the NCD route. Indian Hotels said that it might take the debt or the equity route to raise money for its capex. And there are quite a few more companies, from NBFCs as well as from the manufacturing sectors which are looking at taking the NCD route.
Why is NCD a preferred route today?
1. Currently people have the money and being constantly on the lookout for a better avenue to park their funds, NCD is coming forth as a stable, low risk investment,
2. NCDs give better returns than the bank deposits and in the equity market, small retail investors feel most of the stocks have gone beyond their reach.
3. Rules are softer when it comes to NCD issues - easier declaration requirements, remains open for more than 5 days which is the time stipulated for equity issues and advertising rules are also more relaxed.
4. For NBFCs especially this is the most viable route to raise long term money as they heavily on institutional funding and such long term money of five year duration is almost never available.
5. A NCD is a debt instrument that is issued for a fixed maturity and in which, no part of the debenture is convertible into equity. So this means, no equity dilution for the offering companies.
6. NCDs offer a higher interest interest rate as opposed to convertible debentures do and the security of the capital being intact is a big plus in today’s turbulent times.