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What is a compulsory convertible debenture?

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What is a compulsory convertible debenture?

A compulsory convertible debenture is a bond that must be converted into stock at its maturity date. For companies, it allows for repayment of debt without spending cash. For investors, it offers a return in interest and, later, ownership of shares in the company.

Can private company issue compulsory convertible debentures?

Issuance of compulsorily convertible debentures Section 73 of Companies Act, 2013 along with Companies (Acceptance of Deposit) Rules, 2014, prohibits private companies from accepting deposits from the public. The definition includes any receipt of money by way of deposit or loan or in any other form by a company.

Can compulsorily convertible debentures be redeemed?

Compulsorily convertible debenture also known as CCD is a type of debenture in which the whole value of the debenture must be converted into equity by a specified time. No Debenture Redemption Reserve is required to be created in case of CCDs.

Is valuation required for CCD?

The valuation report is not required if issued to domestic investors. Required if raised from foreign investors. If issuing to foreign investors then Convertible notes should be preferred. If issuing to domestic investors then CCD is the only option.

Who can issue compulsory convertible debentures?

Accordingly, in terms of the Deposit Rules: Company being a private Company, can issue CCDs to its members, provided that such CCDs necessarily convert into equity within a point not exceeding ten years from the date of its issue.

What are the difference between shares and debentures?

Share is the capital of the company, but Debenture is the debt of the company. The shares represent ownership of the shareholders in the company. On the other hand, debentures represent indebtedness of the company. The income earned on shares is the dividend, but the income earned on debentures is interest.

Is section 42 applicable to private companies?

A company making a private placement cannot offer its securities through any public advertisements or utilise any marketing, media, or distribution agents or channels to inform the public about such an offer. …

Can CCD be converted to CCPS?

In a CCD round where the investor(s) is a VC fund, an important reason why CCD is preferred over convertible notes is the fact that CCDs can be converted into CCPS while convertible notes need to be converted into equity shares. CCDs, therefore, end up being costlier to issue than convertible notes.

Can a company issue unsecured CCD?

Accordingly company is allowed to issue unsecured CCD provided it is compulsorily convertible into shares within five years.

Can CCDs be issued on right basis?

Rights Issue: Most of the practicing professionals opine that CCDs cannot be issued by way of rights issue since Section 62 (1) of the Act explicitly mentions issuance of “shares”. Whereas Section 42 states that a company may make a private placement of “securities”.

What are 3 types of debentures issued by company describe in detail?

The major types of debentures are:

  • Registered Debentures: Registered debentures are registered with the company.
  • Bearer Debentures:
  • Secured Debentures:
  • Unsecured Debentures:
  • Redeemable Debentures:
  • Non-redeemable Debentures:
  • Convertible Debentures:
  • Non-convertible Debentures:

Can debentures be converted into shares?

The debenture can typically only be converted into stock after a predetermined time, as specified in the bond’s offering. A convertible debenture will usually return a lower interest rate since the debt holder has the option to convert the loan to stock, which is to the investors’ benefit.

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