NTPC to issue Rs 10,307-cr bonus debentures

This will be the largest ever bonus debenture issue by an Indian company

This copy and its headline have been revised

State-owned thermal power generator NTPC has received regulatory approval to issue Rs 10,307 crore worth of bonus debentures, the largest ever by an Indian company.

The issue of debentures, record date for which is March 23, will also be the first one by a public-sector company for rewardinf shareholders, say NTPC executives.

The proposal to issue secured bonus debentures of a face value of Rs 12.50 each for every one equity share of Rs 10 had been approved by the company's shareholders in December last year. Now, it has received the corporate affairs ministry's go-ahead.

An issue of bonus debentures turns accumulated free reserves into debt for a company. The instrument is not  frequently used by Indian companies. Last year, Blue Dart came up with such an issue. So did Britannia Industries in 2009 and Dr Reddy's Laboratories in 2010.

According to K Biswal, NTPC's director (finance), the return on equity for the company will improve, besides bringing down the weighted average cost of debt.

The company proposes to list the debentures on the BSE and the National Stock Exchange, providing flexibility to shareholders to monetise the security during its life. The company's stock jumped to a 52-week high after NTPC made the announcement to the exchanges on Thursday.

The debentures will be redeemed at the end of the eighth, ninth and 10th years — in the ratio of 20 per cent, 40 per cent and 40 per cent of the face value, respectively.

“So, the reward does not entail an immediate cash outflow for the company,” said Biswal.