Flipkart to enter the debt market? May sell Rs 3,000 crore rupee bonds

After Snapdeal’s possible fund raising activity, arch rival Flipkart too for the first time may raise a whopping Rs 3,000 crore debt by selling rupee bonds in the market.

As per a report by ET, the plan is still a being considered and is in draft stage. "It is at a preliminary stage," said one of sources in the know-how of the development.

Sadly, analysts felt that the idea may not work well only with wealthy investors as bond investors are unlikely to buy the company’s bonds as the etailer is not expected to turn a profit in the next few years.

According to the report, market analysts substantiated their prediction as equity investors have an advantage when it lists or when the valuations get a boost. However, a bond investors does not enjoy any of these benefits.

"Conventional debt financing may be a challenge for a startup venture as they do not have any tangible security or free cash flow to offer," said Nishesh Dalal, partner at KPMG in the report. He added, “They may look at hybrid structured debt with an equity kicker or backend repayment options built in."

The sources have also said that there is a possibility that bond investors may charge a higher rate of interest as the business model of Flipkart involves offering huge discounts as the expense of the cash reserve of the company.

“Given that a pure debt security will make the borrowing cost high, bankers may suggest a convertible bond issue with an equity component,” said the people cited.