Compulsory Convertible Debenture

• Foreign investors from Mauritius, Cyprus and Singapore have been on the receiving end of a number of notices for gains from investment in fully or compulsorily convertible debentures (CCDs) issued by Indian companies.

About Debentures

• A debenture is a medium- to long-term debt security issued by a company as a means of borrowing money at a fixed interest rate.
• Unlike most investment-grade corporate bonds, it is not secured by collateral.
• It is backed only by the full faith and credit of the issuing company.
• In effect, an unsecured corporate bond is a
• A debenture comes in two forms – non-convertible and convertible.
  • Convertible debentures can be converted into the company’s equity after a predetermined period of time.
  • A compulsory convertible debenture (CCD) is a type of bond which must be converted into stock by a specified date.
  • It is classified as a hybrid security, as it is neither purely a bond nor purely a stock.
  • Under FDI guidelines, CCDs are treated as equity for the purposes of reporting to Reserve Bank of India.