Bond vs Debenture Life is full of surprises, and even more so when it comes to finances.

A person having a good income today may face financial crisis in future. To avoid these unforeseen financial crises everyone invests in different instruments that can fetch extra income. There are many options available in the market that can be classified as risky and non risky. It is very well understood that risky options yield higher gains but non risky ones can give very low returns. Debentures and bonds are two such options that can be taken for good returns on ones investment. Debenture is an instrument issued by a company that can be convertible or non convertible into equities. Bonds are issued by companies or by government and can be seen as a loan taken by them to meet their financial needs. These two instruments are basically loan taken from the investor but have very different repayment conditions. Debentures Debentures are issued by a company to raise short to medium term loan needed for expenses or for expansions. Just like equities these can be transferred to anyone, but does not give right of voting in the companys general meetings. Debentures are simply loans taken by the companies and do not provide the ownership in the company. These are unsecured loans as company is not bound to return the principal amount on the maturity. Debentures are of two types convertible and nonconvertible. The convertible debentures are the ones that can be converted into equity shares at a later time. This convertibility provides attraction to the investor but yield lower interest rates. Non convertible debentures does not convert into equity shares thus can yield a higher interest rate. Bonds Bonds are actual contract notes issued by the borrower to pay interest at regular intervals and return the principal on the maturity of the bond. These bonds are issued by the companies for their expenses and future expansions. The bonds are also issued by the government for its expenses. A bond is seen as loan taken by a borrower from the investor so unlike equity share it does not give stake in the company but he is seen as a lender. These bonds are redeemed at a definite time. These are secured loans and can yield low to medium interest rate. Difference between bonds and debentures Both bonds and debentures are instruments available to a company to raise money from the public. This is the similarity between the two, but on closer inspection, we find that there are many glaring differences between the two. Bonds are more secure than debentures. As a debenture holder, you provide unsecured loan to the company. It carries a higher rate of interest as the company does not give any collateral to you for your money. For this reason bond holders receive a lower rate of interest but are more secure. If there is any bankruptcy, bondholders are paid first and the liability towards debenture holders is less. Debenture holders get periodical interest on their money and upon completion of the term they get their principal amount back. Bond holders do not receive periodical payments. Rather, they get principal plus interest accrued upon the completion of the term. They are much more secure than debentures and are issued mostly by government firms.

In Brief: Bonds are more secure than debentures, but the rate of interest is lower Debentures are unsecured loans but carries a higher rate of interest In bankruptcy, bondholders are paid first, but liability towards debenture holders is less Debenture holders get periodical interest Bond holders receive accrued payment upon completion of the term Bonds are more secure as they are mostly issued by government firms

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The Reliance BP deal

The much talked about Reliance BP deal finally came through in July 2011 after a 5 month wait. Reliance Industries signed a 7.2 billion dollar deal with UK energy giant BP, with 30 percent stake in 21 oil and gas blocks operated in India. Although the Indian governments approval on two oil blocks still remains pending, this still makes it one of the biggest FDI deals to come through in India Inc in 2011-1231.

Essar exits Vodafone

In March 2011, the Vodafone Group announced that it would buy 33 percent stake in its Indian joint venture for about 5 billion dollars after the Essar Group sold its holding and exited Vodafone. Healthcare giant Piramal Group too, bought about 5.5 percent in the Indian arm of Vodafone for about 640 million dollars. This brings Vodafones current stake to about 75 percent.

The Fortis Healthcare merger

In September 2011, Indias second largest hospital chain, Fortis Healthcare (India) Ltd, announced that it will merge with Fortis Healthcare International Pte Ltd., the promoters privately held company. This will make Fortis Asias top healthcare provider with the approximate total revenue pegged at Rs. 4,800 crore. Fortis India will buy the entire stake of the Singapore based Fortis International. This company is currently held by the Delhi-based Singh brothers (Malvinder Singh and Shivinder Singh).

iGate acquires majority stake in Patni Computers

In May 2011, IT firm iGate completed its acquisition of its midsized rival Patni Computers for an estimated 1.2 billion dollars. For iGate, the main aim of this acquisition was to increase its revenue, vertical capability and customer base. iGate now holds an approximate stake of 82.5 percent in Patni computers, now called iGate Patni.

GVK Power acquires Hancock Coal

In one of the biggest overseas acquisitions initiated by India in September 2011, Hyderabad-based GVK Power bought out Australias Hancock Coal for about 1.26 billion dollars. The acquisition includes a majority of the coal resources, railway line and port infrastructure of Hancock Coal, along with the option for long term coal supply contracts.

Essar Energys Stanlow Refinery Deal with Royal Dutch Shell

The Ruias flagship company for its oil business, Essar Energy completed its 350 million dollaracquisition of the UK based Stanlow Refinery of Shell in August 2011. In addition to a direct access to the UK market, Essar is planning to make optimum utilization of this deal with its 100 day plan to improve operations at the UK unit.

Aditya Birla Group to acquire Columbian Chemicals

In June 2011, the Aditya Birla Group announced its completion of acquiring US based Columbian Chemicals, a 100 year old carbon black maker company for an estimated 875 million dollars. This will make the Aditya Birla Group one of the largest carbon black maker companies in the world, doubling its production capacity instantly.

Mahindra & Mahindra acquires Ssangyong

In March 2011, Mahindra acquired a 70 percent stake in ailing South Korean auto maker Ssangyong Motor Company Limited (SYMC) at a total of 463 million dollars. This acquisition will see the Korean companys flagship SUV models, the Rexton II and the Korando C foray into the Indian market.

The Vedanta Cairn acquisition

December 2011 finally saw the completion of the much talked about Vedanta Cairn deal that was in the pipeline for more than 16 months. Touted to be the biggest deal for Indian energy sector, Vedanta acquired Cairn India for a neat 8.6 billion dollars. Although the Home Ministry cleared the deal, it has highlighted areas of concern with 64 legal proceedings against Vedanta.

Adani Enterprises takes over Abbot Point Coal

In June 2011, Adani acquired the Australian Abbot Point Port for 1.9 billion dollars. With this deal, the revenues from port operations are expected to almost triple from 110 million Australian dollars to 305 million Australian dollars in 2011. According to Adani, this was amongst the largest port deals ever made.