Debt is referred to the number of monetary assets like money borrowed by the third party. In order to make enormous purchases, many organizations today are using debt as a perfect source of usage (Lewis and Davis, 1987). It is the nominal arrangement in providing funds to other sources with the compilation of some consolation in the actual process. Further debt substitution is the strategy when an organizational firm is about to invest in group or assets which are more risky to handle than that of debt holders in the market. Basically, debt substitution is the one major mode of mutation of funds between two or more functional clients in the market segments (Debt, 2010)
Debt substitution at L&T
L&T infrastructure finance company is an outstanding group which is the sub-portion of Larsen and Toubro limited established in 2006 under the guidelines of RBI acts. The company is an NBFC segment group which offers a large range of services to the government maintaining projects in the environment. L&T mainly stream with its financial products and maintenance of the infrastructure of governing bodies such as roads, gas, ports, telecommunication etc. The guidelines listed by RBI enables the company to have the debt substituting by optimizing its capital structure from borrowing with other long-term funding processes by the investors in the marketing segments (Joe and Lee, 2004). In order to stabilize the process of long-term debt, substitute company must maintain a perfect cost of their shares in marketing regions. From the reports of 2010, it was stated the L&T’s total revenue was about Rs 4,504m and much of these funds are attained from the debt provided by the investors in the marketing segments. L&T debt substitute depends on the public issue bonds and support from the bakers in the marketing segments. L&T prefers bonds as their major source of investment in the business contexts. With the help of bonding, L&T acquired much of the debt funds from resources in the market. Bonds are usually secured mode of receivables for the company to have right kind of investment in the group essentially. In general, L&T attains four different type of debt substitute process to fulfil the investor’s needs (Mao C X, 2003). Bonds are issued in the physical form. All the bonds are issued according to the guidelines of NSE. A company can offer a range of tax deduction for the investors in the market according to guidelines of IT act. Thus bonds are the major sources of Debt substitute for L&T group rather depending on the direct financial assistance (L&T finance, 2009).
- Joe J B and Lee T (2004), “The Agency Problem, Investment Decision and Optimal Financial Structure”, European Journal of Finance, Europe
- Lewis M and Davis K T (1987), Domestic and international banking, Philip Allan Publishers, Great Britain
- Debt (2010), [internet] available at URL <http://www.investopedia.com/terms/d/debt.asp#ixzz1VlG3CauP> [accessed on March 22,2012]
- L&T finance(2009), [internet] available at URL < http://www.sebi.gov.in/dp/landt.pdf> [accessed on March 22,2012]