Few tips to sell “Non-Convertible Debentures”

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Need some cash and need to sell some investments?? Here is the guide on how to sell a bond or a non-convertible debenture? Bond markets are illiquid and absolute sale price has little meaning (unlike an equity share). First check with the stock exchange. Check if your bonds are listed on the BSE or the NSE. Make sure you’ve entered the correct ISIN. Each debt instrument issued by a borrower has an ISIN. They should also check the scrip code from the dealer and the last traded price. The sell order may not go through if the selling price is higher than market price.

It’s also important investor is aware of ‘dirty’ and ‘clean’ price of the bond security. Dirty price accounts for principal and accrued interest. Even if your bond is listed, there may not be any buyers. Typically, companies issue bonds sizes of around ₹600-800 crore. There would be 3-4 options; only one of them would be for retail investors. All these bonds would be split across several maturities. Add to that the possibility of very few investors out there who might want to trade.

Look at the bond’s yield to maturity (YTM). A bond’s price is a function of its interest rate and market price. A lower YTM results to a higher price and vice-versa, as yields and bond prices are inversely co-related. How do you check your bond’s YTM? Look at YTMs of similar-rated instruments. Your next option is a settlement platform such as India Clearing Corporation or National Securities Clearing Corporation. These are platforms on which bond dealers trade. You need to find a broker to buy the bonds from you. If you trust your broker, you could enter into an off-market deal (more about that later), or go through a settlement platform.

Both the payments and the bonds being sold are routed through the settlement platform. If the buyer doesn’t honour the payment, the platform will credit back the bonds Or you can do an off-market transaction where you give the bonds directly to the broker and he deposits the money directly in the bank account. At times, some brokers give offers to buy certain companies bonds from the market. If they offer you a good price (and not to forget, a good YTM), then you could consider this option. But this path is laden with risks as, many times, we may not have heard of the buyer’s name or reputation.

Recently, certain bondholders of a government-owned firm and a former infrastructure financing company have received mails from an investment firm, giving them ‘exit’ offers. The mail offers to buy bonds at a discount. Don’t be in a rush to sell. Do a thorough internet check of the buyer’s background. Ask distributors or financial advisors you know if they’ve heard of the broker who has approached you. If you find any red flags, stay away from such arrangements. If nothing else works, you can take a bank loan against your bonds.

 

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