India Inc Skips Bonus Issues Despite Rich Reserves

The corporate sector seems to be in no mood to reward shareholders through bonus issues despite burgeoning free reserves. The reason: they are sceptical about servicing the enhanced equity as the growth prospects in profits are uncertain.

In the first nine months of this year, only 21 companies have issued bonus shares compared with 42 companies during the corresponding period last year.

The list with the BS Research Bureau shows that as many as 481 companies have capacity to issue bonus shares. With free reserves of over 5 times of their equity capital, they have excellent dividend distribution records too.

Of these 481 firms, only 8 have issued bonuses in this year, while 63 issued during last four years by utilising free reserves. The remaining 418 companies did not give any bonuses since 1996-97.

Again, on the basis of rate of growth in profits during the last three years, 138 companies have not issued bonus shares very often. Of these 138, only 21 companies have issued bonus shares since 1996-97.

There were only five bonus issues each in 2001 and 2000, 6 in 1999, only 2 in 1998 and 3 in 1997.

However, the firms are now taking other routes to reward shareholders. For instance, FMCG major Hindustan Lever Ltd had recently proposed bonus debentures for shareholders. The company proposed to utilise Rs 1,455 crore from general reserves for this purpose. In this issue , one debenture at a face value of Rs 6 and interest rate of 9 per cent per annum, will be issued for each share held at a face value of Re 1. The debentures will be redeemed in two equal installments beginning from the end of second year after allotment.