Non-convertible debentures are a type of financial instrument used by companies to raise funds for their development. These debentures function like loans, but with a unique feature. When you purchase non-convertible debentures, you provide a fixed amount of money to the company for a specified period, and in return, the company pays you a fixed interest for that duration.
WHY DID GODREJ PROPERTIES RAISE FUNDS THROUGH NON-CONVERTIBLE DEBENTURES?
Now, the question arises, why did Godrej Properties raise funds through non-convertible debentures? There could be several reasons:
1. Business Expansion: Godrej Properties is currently involved in developing various projects in several Indian cities. Their objective may be to expand their real estate projects. These funds can assist them in initiating new projects and investing in existing ones.
2. Capital Requirement: Given the rapid launch of new projects by Godrej Properties, they may require additional capital. Non-convertible debentures provide a form of long-term capital without diluting the company's ownership or control.
3. Low-Interest Rates: Non-convertible debentures typically offer relatively attractive interest rates. This enables the company to obtain funds at a reasonable cost compared to traditional loans. For instance, Godrej is securing funds through non-convertible debentures at an 8.5% interest rate.
4. Long-Term Financing: With maturity dates in 2027 and 2028, non-convertible debentures indicate that the company is focused on long-term financing, aligning with the nature of real estate projects.
5. Strong Housing Demand: There has been a significant surge in housing demand since the COVID-19 pandemic. Godrej anticipates a 14% growth in sales for the financial year. Non-convertible debenture funds can help meet this growing demand.
CHALLENGES
Let's also discuss some challenges:
It's worth noting that Godrej Properties has faced negative cash flow in the past three financial years. This suggests a shortage of cash. However, this doesn't necessarily indicate a loss in business. Real estate businesses often require substantial capital for stability, and they come with various risks, such as quality management and timely possession.
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