State-owned hydropower giant National Hydroelectric Power Corporation Ltd (NHPC) recently raised Rs 996 crore through the issuance of non-convertible bonds on private placement basis.

 

What is the Private Placement of bonds?

  • A private placement is a sale of bonds to select investors and institutions instead of the open market.
  • Typically, a private placement is defined as an issuance of securities to less than 50 persons.
  • Investors in privately placed bonds usually include wealthy individuals and entities, mutual fund providers, insurance companies, and banking and financial institutions.
  • Unlike a public offering, private placements are exempt from having to file an offer document with the Securities and Exchange Board of India (SEBI) for comments.
  • A private placement may not involve any form of general announcement, solicitation, advertising, seminar, or meeting to publicise such an offering.

 

Advantages

  • It is a cost and time-effective method of raising funds.
  • It can be structured to meet the needs of entrepreneurs and investors.
  • It has easier compliance formalities.
  • In India, the majority of corporate fund raises have been through private placement.
  • Issue of securities through private placement route is governed by SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

 

What are non-convertible bonds?

  • It is a financial instrument issued by Corporates for specified tenure to raise resources/funds through public issue or private placement.
  • They cannot be converted into equity shares or stocks, hence called non-convertible.
  • It is a fixed-income instrument same as a bank fixed deposit, and can be traded on stock exchanges.
  • Interest can be earned monthly/quarterly/annually/cumulative, and on maturity principal amount is paid to the bondholder.
  • They are a popular form of investment tool among investors because of their higher returns, liquidity, low risks, and higher interest rates than convertible debentures.