Adani Ports and SEZ has announced the issuance of non-convertible debentures (NCDs) for the third time in this year to raise funds through debt instruments. In between 2019 and 2020, Adani Ports have already raised over $4 billion through debt tools across its businesses. The company is looking to elongate its debt tenure and reduce interest cost. This time the company is aiming to raise Rs 3,000 crore from the market through the private placement of non-convertible debentures.
The company mentioned that the board had given in-principal approval to the issuance of non-convertible debenture by SEZ in one or more tranches.
Adani Ports and SEZ NCDs will be listed in BSE and/or NSE and will be placed through private route.
How does NCDs work?
NCD stands of non-convertible debentures, and as the name suggests, these debentures can’t be changed to shares. Some debentures can be converted to shares, of course with the consent from the issuer. NCDs lies on the other side of the spectrum.
NCDs are simple debt instruments issued by the bank when they want to raise capital funds from the market, against a promise of paying fixed interest income to the investor.
NCDs offer a range of advantages, making them a popular investment instrument.
A high rate of interest: NCDs offer a higher rate of return between 11-12 percent compared to other investment options like a fixed deposit.
NCDs are great options for investors who look for a regular return on their investment. The maturity period of NCDs can be anything between 90 days to 20 years, allowing investors the flexibility to choose a tenure based on their financial goals.
Liquidity: When it comes to liquidity, NCDs lie in the midway between regular stocks and bank fixed deposits. Redeeming NCDs are more cumbersome than selling regular stocks in the exchanges and but they are also more liquid than FDs.
If you are considering adding NCDs to your portfolio, you must also update yourself on the variety of NCDs available. These are generally of two types – secured and unsecured. Secured NCDs are backed by the company’s asset and therefore carry less risk than unsecured debentures. If a company files for liquidation, investors of secured debentures will have the first claim over other investors.
On the downside, the value of an NCD depends on the credibility of the issuing company. Agencies like CRISIL, ICRA and CARE rate companies on a scale that measures their creditworthiness and debt repayment abilities. And, companies with lower risk pose a higher risk.
So, are NCDs good? NCDs create a source of regular income for investors. The promise of regular but higher return makes these low-risk investments a better choice than other fixed-income investments. However, before you invest in NCDs, don’t forget to check the credit rating of the company.