SEBI
SEBI-Sahara OFCD case: Optionally fully-convertible debentures- Meaning explained
1. What is Debenture?
2. Difference between Bonds and Debentures?
3. Types of Debentures
4. What is Optionally fully-convertible debentures (OFCD)?
5. 2008-09: The game begins
6. 2011: SEBI Order
7. 2012: Supreme Court hearing
8. Order of Supreme Court
9. Government’s response
What is Debenture?
From the earlier Debt + Equity article, you know there are two (legit) ways to arrange money for starting or expanding a company
Type meaning Example
Debt: Borrow money from someone. Offer him interest rate and guarantee to repay the principal after xyz date.
Ex: Bank loans
Borrowing from friends, relatives, moneylenders
Bonds
Debentures
Equity:
Take money from someone and offer him part ownership of the company.
Ex:
IPO-> Share.
Venture Capitalist
Angel Investor
Suppose a Telefilm company is producing a new bogus saas-bahu series.
The company needs additional finance of 100 Crore rupees just for the make-up, jewelry and expensive sarees of those actresses.
Company can approach the bank for a loan, but problems: 1) terms and conditions are heavy 2) the SARFAESI act (with its new amendments)
So, it’s better just to borrow from public.
Whoever gives you Rs.100, you give him a piece of paper titled “blah blah blah..these are the terms and conditions, repayment dates, interest rates etc.”
This piece of paper is called Debenture.
In this case, you need 100 crores, meaning print 1 crore papers (debentures) each worth Rs.100.
Whoever holds such paper units is called Debenture holder.
The cash thus collected is a loan for the company. (=debt
Difference between Bonds and Debentures?
Overall, the principle behind Bonds and Debentures is same: They offer fixed interest rate + principal repaid at the specified date.
Ok then what’s the difference?
1.Bond
2.Debenture
Issued by
1. Union Government
2. State Government
3. PSUs
Issued by companies.
Second
1. What is Debenture?
2. Difference between Bonds and Debentures?
3. Types of Debentures
4. What is Optionally fully-convertible debentures (OFCD)?
5. 2008-09: The game begins
6. 2011: SEBI Order
7. 2012: Supreme Court hearing
8. Order of Supreme Court
9. Government’s response
What is Debenture?
From the earlier Debt + Equity article, you know there are two (legit) ways to arrange money for starting or expanding a company
Type meaning Example
Debt: Borrow money from someone. Offer him interest rate and guarantee to repay the principal after xyz date.
Ex: Bank loans
Borrowing from friends, relatives, moneylenders
Bonds
Debentures
Equity:
Take money from someone and offer him part ownership of the company.
Ex:
IPO-> Share.
Venture Capitalist
Angel Investor
Suppose a Telefilm company is producing a new bogus saas-bahu series.
The company needs additional finance of 100 Crore rupees just for the make-up, jewelry and expensive sarees of those actresses.
Company can approach the bank for a loan, but problems: 1) terms and conditions are heavy 2) the SARFAESI act (with its new amendments)
So, it’s better just to borrow from public.
Whoever gives you Rs.100, you give him a piece of paper titled “blah blah blah..these are the terms and conditions, repayment dates, interest rates etc.”
This piece of paper is called Debenture.
In this case, you need 100 crores, meaning print 1 crore papers (debentures) each worth Rs.100.
Whoever holds such paper units is called Debenture holder.
The cash thus collected is a loan for the company. (=debt
Difference between Bonds and Debentures?
Overall, the principle behind Bonds and Debentures is same: They offer fixed interest rate + principal repaid at the specified date.
Ok then what’s the difference?
1.Bond
2.Debenture
Issued by
1. Union Government
2. State Government
3. PSUs
Issued by companies.
Second