Non-convertible debentures have emerged as preferred option to raise funds for companies, especially NBFCs, as they garnered Rs 35,000 crore through this route in 2012 -- a 3-fold jump from the preceding year.
Moreover, two companies -- Housing and Urban Development Corp (HUDCO) and India Infoline Finance -- are in the process of collecting over Rs 14,000 crore through the NCD route.
Additionally, Thomas Cook had announced plans to raise Rs 200 crore through NCD route on a private placement basis.
Non-Convertible Debentures are loan-linked bonds issued by a company that cannot be converted into stock and usually offer higher interest rate than convertible debentures.
According to information available with market regulator Sebi, as many as 12 companies mopped-up Rs 35,038 crore last year through various tranches, a steep hike from Rs 12,753 crore garnered in 2011.
Most of the funds were raised to support financing activities and to meet working capital requirements.
Experts say the companies have chosen NCD route as the equity market continued to be volatile last year, even though it had given good return to investors, making it difficult for firms to raise funds.
"Debt instruments, especially NCDs, have emerged as a preferred route for retail investors to park their funds as these were offering higher returns compared to most of the banks providing on fixed deposits," CNI Research Head Kishor Ostwal said.
"While banks offer a return of 9-9.5% for a 5-year period, NCDs of a similar tenure can offer between 10% and 12%," he added.
In 2012, National Highway Authority of India (NHAI) raised the maximum amount via NCDs by garnering Rs 10,000 crore. Indian Railways Finance Corp mopped-up Rs 6,269 crore and Rural Electrification Corp (REC) raked in a total of Rs 5,046 crore through two tranches.
Other major NCDs were - Power Finance Corp (Rs 4,744 crore) through two tranches, followed by HUDCO (Rs 4,685 crore), IDFC (Rs 855 crore) through two tranches, Muthoot Finance (Rs 719 crore) through two tranches, Shriram Transport Finance Company Ltd (Rs 600 crore) and India Infoline Finance (Rs 500 crore).
Investors were being offered interest rate between 7.3% and 12.6% per annum through these NCDs. Most of the NCDs' tenures ranges for 10 and 15 years.
Market analysts said investment in NCDs should not exceed 14-15% of an investor's debt portfolio.
Market analysts said, meanwhile, investors should look for parking funds in more than one NCD to avoid the risk of one- party exposure because unsecured debentures have an additional risk; they are not backed by security in the form of land or other assets.
The issue of India Infoline Finance, which has announced plans to raise as much as Rs 9,215 crore through NCDs, opened for subscription on December 26, and closes on January 11.
"...Plan to raise Rs 1,500 crore with green-shoe option up to the shelf limit of Rs 9,215 crore on first-come first-serve basis," it has said.
Besides, HUDCO, which is planning to raise Rs 5,000 crore, said the company cannot raise the sum in first tranche, and would go for the second tranche before March 31.
