Most of us are familiar with IPO issues, where a company offers its shares to the public. But have you heard of NCD IPOs? Nowadays, NCD IPOs are becoming increasingly popular as they offer investors a regular fixed interest income, but very few of us know what an NCD IPO is.
An NCD IPO is the public issue of debt securities by a company to raise capital. NCDs are non-convertible debentures or debt instruments that cannot be converted into equity shares.
In this article, you will learn all about what an NCD IPO is and the difference between an NCD IPO and Equity IPO.
NCD stands for Non-Convertible Debentures and IPO for Initial Public Offering. Thus, NCD IPO full form is the public issue of debt securities by a company.
When a company offers or sells its debentures to the public, it is called an NCD IPO or Debt IPO.
A company can issue NCD IPO more than once if it needs funds. Each NCD issue has a fixed interest rate or coupon that is paid to NCD investors at regular intervals. NCDs also have a fixed maturity i.e. a few months to years. Once the NCD matures, the issuing company repays the principal amount invested along with the interest due to the investors.
Types of NCD IPO or Debt IPO
A company can offer two types of NCD issues, namely secured NCD and unsecured NCD issue.
Secured NCD IPO: As the name suggests, secured NCDs are backed by the assets of the company. Thus, if the company fails to pay to debenture holders, assets will be sold out to repay lenders.
Unsecured NCD Issue: Unsecured NCDs have no lien on the assets of the company and repayment depends on the creditworthiness of the issuer.
Therefore, it is advisable to check NCDs' credit rating by rating agencies like CRISIL, ICRA, Care Ratings, etc. NCD issues with a good credit rating are considered less risky than low-rated securities.
An equity IPO is the first-time issue of a company's shares to the public. An unlisted company can sell its shares to raise funds from the public. In an equity IPO, anyone who buys shares in the company becomes a shareholder or investor with a stake in the company.
A company can offer new shares (fresh issue) or the promoters can sell their shares to the public (offer for sale).
The funds raised through a public issue can be used for various purposes such as business expansion, general corporate purposes, strategic initiatives, purchase of new machinery or others.
There are two types of public issues: a book-building IPO and a fixed-price IPO.
Book-building IPO: If the issuing company sets a price range, i.e. Rs 250 to 260 per share, it is called a book-building IPO. The lower price Rs 250 is called the floor price and the upper price Rs 260 is called the cap price or cut-off price. Investors can bid at any price within the price band and retail investors are allowed to bid at the cut-off price. The final allotment price is determined after the company receives subscriptions from investors.
Fixed-price IPO: When a company issues shares at a fixed price, it is called a fixed-price IPO. For example, an IPO at a price of Rs 50 per share is called a fixed price issue.
Differences between Equity IPO and Debt IPO
Let's find out the key differences between Equity IPO Vs debt IPO.
NCD IPO is the best investment opportunity for low-risk retail investors. It is the best alternative to FD.
Investing in NCDs offers investors fixed regular interest income. If you do not want to stay invested till maturity, you can also exit before maturity by selling them on the stock exchange.
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