Credit Rating for NCD Issuance: A Guide for Companies

For companies looking to raise debt directly from investors rather than through bank borrowing, Non-Convertible Debentures (NCDs) are an increasingly common route. Unlike bank loans, where the lender conducts its own internal credit assessment, NCD issuances rely heavily on an external, published credit rating — making the rating process central to the entire fundraise.

Why Credit Rating Is Mandatory for NCDs

SEBI regulations require rated instruments for most public and several categories of private NCD issuances, since retail and institutional investors rely on the published rating as their primary reference point for assessing risk — they don't have the same access to a company's internals that a bank's credit team would during a loan appraisal. This makes the rating not just a formality but the core piece of information investors use to price and decide on the issuance.

How the Process Differs from a Bank Loan Rating

Higher public visibility. NCD ratings are published and widely referenced by investors, media and analysts, unlike bank loan ratings which are typically shared only with the lender.

Rating directly drives pricing. The coupon rate a company can offer is very closely tied to its rating — even a single-notch difference can materially change the interest cost across the life of the issuance.

Ongoing disclosure obligations. Listed NCD issuers have continuous disclosure requirements to stock exchanges and investors, in addition to the rating agency's standard surveillance process.

Rating rationale is public. Unlike a bank loan rating rationale (often shared only with the lender), NCD rating rationales are typically published, meaning the company's financial and business risk profile is visible to the broader market.

What Companies Need to Prepare

●        Multi-year audited financials with clean, consistent reporting

●        A clear articulation of use of proceeds and repayment/redemption plan

●        Detailed disclosure of existing debt, security structure and repayment schedules

●        Governance documentation, since public disclosure standards are higher for capital markets instruments

●        Legal and compliance documentation supporting the issuance structure (trustee arrangements, security creation, etc.)

Common Challenges

Companies issuing NCDs for the first time often underestimate the level of public disclosure and governance scrutiny involved compared to a private bank loan rating. Related-party transactions, contingent liabilities and any history of delayed debt servicing are all reviewed more rigorously, since the rating and its rationale will be publicly available to prospective investors.

How FinMen Advisors Helps

FinMen Advisors supports companies preparing for an NCD issuance by helping organise financial and governance documentation to the standard expected for a published, investor-facing rating. This includes helping identify and address disclosure gaps well before the formal rating process with the agency begins. FinMen Advisors does not issue the rating, structure the NCD itself, or manage the issuance process — those involve the rating agency, merchant bankers, debenture trustees and legal advisors, working alongside the company.

Frequently Asked Questions

Is a credit rating always mandatory for NCD issuance?

For public issuances and most private placements under SEBI's NCD framework, yes — a rating from a SEBI-registered agency is a regulatory requirement.

Does a lower rating mean a company cannot issue NCDs?

Not necessarily — even lower-rated NCDs can be issued, but typically at a higher coupon rate to compensate investors for the additional risk.

How is an NCD rating different from a bank loan facility rating?

The underlying assessment approach is similar, but NCD ratings involve higher disclosure standards and public visibility, since they're meant to inform capital market investors directly.

Can FinMen Advisors help structure the NCD issuance itself?

FinMen Advisors focuses on financial and governance documentation supporting the credit rating; the broader issuance structuring typically involves merchant bankers, legal counsel and debenture trustees.