Why company issue NCD?

NCDs allow the companies to borrow money from investors by offering a fixed interest rate over a defined period. Unlike convertible debentures, NCDs cannot be converted into company shares, making them a debt instrument.

Investors receive a steady stream of income based on the company's creditworthiness.

NCDs are generally utilised for the following reasons:

• Repayment or prepayment of existing borrowings, including repayment of principal and interest, to manage liabilities or replace earlier debt.
• Refinancing of existing debt, which may help optimise the borrowing structure or manage cash flows.
• Onward lending and financing activities, especially in the case of NBFCs and financial institutions.
• General corporate purposes, such as meeting operational expenses, strengthening working capital, acquiring assets, funding expansion, managing inventory, or supporting day-to-day operations.

Companies issue NCDs to raise funds for a specific period without diluting ownership. The proceeds are generally used for repayment or refinancing of existing borrowings, funding business activities, and meeting general corporate requirements.