Corporate debt is the debt owned by a publicly traded corporation. It is its financial obligation. The issuer promises to repay the debt amount on maturity and also to pay interest during the course of the contract. The main purpose of this debt is to raise funds to finance a corporation’s investments, to maintain ongoing operations etc. Commercial papers and bonds are the main debt issues of a corporation.
It includes all non-governmental debts. Bonds issued by a government in any foreign currency and issued by super-national organizations are also included in this.
Significance
There is much reason why debt is preferred than other means of fundraising by corporations.
- Bank loans are expensive and are associated with restrictive covenants.
- Equity financing takes away profit from a corporation.
- Having debt allows corporations to get tax benefits.
Indian Market
Corporate debt has become a concern for Indian policy makers. Since years, many corporate groups are accumulating a large amount of debt. Currently, the government has taken a zero-tolerance approach to this issue and the prices of such stocks are reduced as a penalty.
Investors’ strategy
Debt amount of a corporation is a noteworthy parameter to consider while deciding to invest in it. Try to evaluate the amount, type, purpose and restructuring options of a corporation’s debt before investing your money in it.
