Is it Worth Issuing Debentures to Finance your Company?

Defining how to finance a company is one of the most strategic and complex steps in the business world.

Among the various alternatives for raising funds, an interesting and increasingly common option is issue debentures to finance your company.

This approach can be advantageous, but it also requires detailed analysis of risks and benefits.

This comprehensive guide covers the basics, advantages, disadvantages, and provides an up-to-date overview to help you decide if this is the best choice for your organization.

What are Debentures?

Debentures are financial instruments that allow companies to raise funds directly from investors, instead of resorting to traditional bank loans.

They function like debt securities, in which the issuer undertakes to pay interest and, upon maturity, return the principal amount invested.

This type of fundraising is common among medium and large companies seeking financial flexibility.

Main characteristics of debentures:

• Issuer: Private companies, as long as they are regulated by the Securities and Exchange Commission (CVM).
• Investors: Individuals or legal entities interested in diversifying their portfolios.
• Remuneration: Income can be fixed, variable or linked to indexes such as the IPCA.

In addition to the classifications mentioned above, debentures may have specific clauses, such as payment guarantees or conditions that make the bonds more attractive to certain investors.

"Debentures are the direct link between companies and investors, promoting economic development through more accessible financing." – ANBIMA, 2024.

Why Consider Issuing Debentures to Finance Your Company?

1. Diversification of Funding Sources

Using the capital market expands funding options and reduces dependence on banking institutions, which is crucial in scenarios of high interest rates.

Companies that diversify their sources of resources tend to be more resilient in times of crisis.

For example, in 2023, several companies in the infrastructure sector in Brazil issued debentures to reduce their financing costs.

This movement was driven by the increase in the Selic rate, which made traditional bank credit more expensive.

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2. More Competitive Conditions

Debentures can be more economical than other forms of raising funds, especially incentivized ones, which offer income tax exemption for individual investors.

This tax benefit increases demand for bonds, which reduces the rate of return required by investors.

However, it is important to plan the issuance considering the economic scenario. For example, in times of high inflation, the cost of bonds can increase significantly.

3. Increased Market Visibility

The issuance of debentures signals to the market the company's ability to organize itself financially and comply with strict regulatory standards.

This can attract new investors and strengthen the company's reputation in the long term.

The Risks Involved in Issuing Debentures

Despite its advantages, issuing debentures to finance your company requires attention to the inherent risks:

1. Credit risk

Investors may be hesitant to buy bonds from companies with low credit ratings. This could increase the costs of the issuance or limit the amount raised.

Companies must secure a good rating from rating agencies such as Fitch and Moody's. Without a satisfactory rating, it will be difficult to compete in the capital markets.

2. Market Risk

The value of debentures can be influenced by economic volatility. For example, sudden changes in interest rates directly impact fixed-rate bonds.

Therefore, this requires careful planning and constant analysis of market conditions.

3. Complexity in Issuance

Issuing debentures involves considerable initial costs, including regulatory fees, hiring consultants and expenses for registration with the CVM.

Therefore, it is essential to calculate the expected return in relation to the investment made in the issue.

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Detailed Steps for Issuing Debentures

Issuing debentures is not a trivial process. Here are the main steps:

1. Financial Planning Clearly define the purpose of the issuance. Will it be for expansion, debt settlement or investment in new projects? Also establish the amount required and the most appropriate remuneration structure.
2. Legal Structure Prepare the issuance deed, which is the basic document for regulating the rights and duties of the issuer and investors. The CVM requires absolute transparency, and carelessness at this stage may make the issuance unfeasible.
3. Distribution Debentures are sold through financial institutions, such as investment banks and brokerages. Make sure your proposal is competitive and attractive.
4. Post-Issue Management After issuance, the company must strictly honor interest and principal payments, as well as maintain constant communication with investors.

How Does the Economic Scenario Impact the Decision?

In 2024, Brazil will have a buoyant capital market, favored by the gradual drop in the Selic rate and the resumption of investments in infrastructure.

Incentivized debentures continue to lead the market, attracting billions of reais in investments.

According to ANBIMA, companies in the renewable energy sector stood out with emissions of around R$50 billion in the first months of 2024.

This reflects the growing demand for sustainable investments.

Table: Comparison between Debentures and Other Sources of Financing

Success Stories

Market-leading companies use debentures to finance their projects. Neoenergia, for example, issued incentivized debentures to build transmission lines in northern Brazil.

The project not only attracted investors, but also generated social benefits by connecting isolated communities.

Another relevant example is a large Brazilian pharmaceutical industry that used debentures to finance the expansion of its facilities.

This strategy allowed the company to double its production capacity in just three years.

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Is it Worth Issuing Debentures to Finance your Company?

If your company has a solid structure and seeks to diversify sources of financing, issue debentures to finance your company can be an excellent alternative.

This instrument provides access to long-term resources, with competitive costs and relevant tax benefits.

However, it is crucial to consider planning and execution. Companies that do not prepare adequately can face significant challenges, such as high costs or difficulty attracting investors.

"Planning is the key to transforming debentures into a powerful tool for business growth." – Ricardo Amorim.

Ultimately, the success of this strategy depends on a careful assessment of market conditions, the financial strength of the company and the support of expert advisors.