Convertible debentures

Companies Act 2013 543 views 4 replies

Nabarun KC

Nil

23 Points Posted on 23 May 2026

I have invested in a NSE listed company. That company has invested in optionally convertible debentures of its wholly owned subsidiary about 170 crores.

Previously the listed company in which I invested incorporated its wholly owned subsidiary in 2024. Sold 25% of its stake in wholly owned subsidiary at fair market value to another promoter owned LLP. But due to retail investor questioning the promoter at AGM , the Company bought back the 25% stake which was previously sold.

Now my question is that the company can give loans to its subsidiary. But why instead of loan route it invested in optionally convertible debentures of the wholly owned subsidiary?

Replies (4)

Quick Summary

Discussion on why a listed company funded its wholly owned subsidiary through optionally convertible debentures instead of loans. Members explained benefits like quasi-equity treatment, tax efficiency, flexibility, and future equity conversion, while debating whether it truly protects retail investor interests.

Aashok FC Advisory

Finance Compliance Consultant

1025 Points Posted on 23 May 2026

The company chose Optionally Convertible Debentures (OCDs) over a traditional loan to navigate strict legal interest rate floors under Section 186, optimize corporate tax, keep the subsidiary’s balance sheet bankable (quasi-equity status), and preserve the option to convert the debt into high-value equity shares if the subsidiary grows, thereby protecting and maximizing value for the listed company's retail shareholders.

Nabarun KC

Nil

23 Points Posted on 23 May 2026

The wholly owned subsidiary watch incorporated in the year 2024. the subsidiary has not started commercial production. Promoter holding in the company I invested is 63%. Promoter divested 25% in the subsidiary to another Promoter owned LLP. But later that year promoter bought back those 25% in the original company.

My enquiry is that currently the subsidiary is wholly owned. So even if debentures are converted to equity does it really in interest of retail investor.

ACCOUNTANT

Student

575 Points Posted on 05 June 2026

Present the company is WOS. At anytime the company may convert the convertible debentures into equity shares and it stop being a WOS.I think the Case law is Salomon vs Salomon.And the company may come for public issue and converting the WOS into a normal company public limited or company coming for public issue.

Please correct me if I misunderstood.