What is debenture stripping?

Debenture stripping is a financial practice where a company separates the interest and principal components of its debentures, which are long-term debt securities issued to raise capital. This process allows investors to purchase the interest payments (often as income-generating securities) separately from the principal repayment. As a result, it provides more flexibility for investors and can enhance liquidity in the market. However, the practice may also lead to complexities in valuation and risks associated with the underlying securities.