Dr Reddy's board approves bonus debentures issue

Dr Reddy’s Laboratories Ltd (DRL) today said its board had approved the issue of bonus debentures that would cost it up to Rs 520 crore.

DRL would issue six unsecured, non-convertible, redeemable and fully paid up bonus debentures of face value of Rs 5 each to its shareholders for every one equity share of Rs 5 held, it said in a statement. The debentures would carry a coupon rate to be determined by the company’s board, payable annually and would be redeemable after three years, it added.

DRL intends to have these debentures rated and listed on the Bombay Stock Exchange and/or the National Stock Exchange.

The above scheme is, however, subject to approval by the company’s shareholders, the Reserve Bank of India and the Andhra Pradesh High Court.

“In order to optimally utilise surplus reserves, the company intends to issue bonus debentures to its shareholders by restructuring the general reserve. These listed bonus debentures have the dual benefit of avoiding an upfront cash outflow for the company while offering shareholders the option of immediate liquidity,” DRL’s vice-chairman and chief executive officer, G V Prasad, said.

“We recently completed 25 years of operations and are keen to reward our shareholders for their support and belief in the company. Over the last few years, we have built significant reserves from retained profits, by transfer to general reserve. The capital represented by the general reserve exceeds the company’s current and anticipated operational needs, even taking into account foreseeable investments required for growth.”

DRL will bear and pay dividend distribution tax at prevailing rates at the time of issue, since the issue will be considered a “deemed dividend” under the provisions of the Income Tax Act. The total amount of the issued and allotted debentures plus applicable dividend distribution tax, will be drawn from the company’s general reserves.

DSP Merrill Lynch Ltd is the financial advisor and Amarchand & Mangaldas and Suresh A. Shroff & Company is the legal advisor.

To provide additional liquidity to shareholders, DRL is in discussions with a merchant banker regarding a limited period liquidity facility to provide shareholders with the option of tendering their bonus debentures for sale soon after allotment.

The terms and conditions of the liquidity facility will be finalised later.