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Debenture
A debenture is a long-term fundraising tool in addition to the issuance and offer of ordinary shares, in which the issuer is required to pay returns to the debenture holders in a form of interest for a specified period and rate, making the issuer a debtor and the debenture holders the creditors of the company.
Convertible Debenture
Holders of a convertible debenture have the right, subject to the specified terms and conditions, to convert the debenture into ordinary shares.
The advantages are as follows:
- No immediate dilution effect on the company’s shareholders which is unlike raising funds by issuing ordinary shares via PP/PO
- When the debenture holder exercises the right to convert debentures into ordinary shares, the D/E ratio will improve in the future
Benefits of Issuance and Offering
Company
 | More fundraising options for the company without needing to solely rely on financial institution loans. |
| The credit rating results will improve the company's image |
| Compared to issuance of shares, debenture interest is considered an expense which can lower the company’s corporate income tax |
Shareholders
 | Reap the benefits from the company's ability to invest in a variety of projects as planned due to the increased sources of funds |
| No dilution effect in case of debenture or gradual dilution effect in case of convertible debenture |
Rules on Issuance of Debenture
A debenture is a type of fundraising alternative that help reduce the issuer's need to rely on financial institutions and the interest burden. The issuers can choose the type, term, and nature of the debt securities offered for sale based on their financial demand. Debentures can also be a valuable investment option for investors during times of volatility in the stock market.
