NTPC fixes March 23 as record date for bonus debentures

In a first for any public sector entity, NTPC, has announced issuance of bonus debentures worth ₹10,306 crore for its equity shareholders.

The bonus debentures are ‘deemed dividend’ which would enable the company not to pay any dividend in the current fiscal and save on dividend distribution tax.

The company has fixed March 23 as the record date for issuing 824.6 crore bonus debentures. It will issue bonus debentures of ₹12.50 each to every shareholder of equity shares of ₹10.

The debentures are of 10-year tenure. The coupon rate for the debentures, will be fixed by adding a spread of 50 basis points to the annualised average 10-year G-Sec and is expected to be around 8.3 per cent.

“The issue helps us reward shareholders without reducing the company’s cash reserves or cutting down the share value. Shareholders can monetise it immediately as it will be listed on the NSE and BSE,” NTPC Director (Finance) K Biswal said.

Biswal told reporters that it would lead to optimal utilisation of the company’s reserves and improve NTPC’s return on equity. The move will increase its debt to equity ratio to 1.1 from 0.8 currently, he added. Currently the company’s debt to equity ratio is 0.8, much lower than the 70:30 debt to equity ratio permitted by power tariff regulators. This brings down its overall return on equity.

“Often a complaint is that we are under-leveraged. Through this, our overall capital structure would improve. The weighted average cost of our total debt will become 9.97 per cent,” Biswal said.

Analysts view the issuance of bonus debentures and the change in NTPC capital structure as a positive since it will also improve its return on equity without impacting operations.

NTPC’s return on equity will improve as the ₹10,306 crore will get reduced from its share capital and move to debt.

HSBC Global Research’s Senior Analyst — India Power Utilities, Arun Kumar Singh, said that while this will increase the interest cost; this isn’t a concern as debt cost is allowed as a pass through for power tariff fixation.

On Thursday, NTPC shares closed 3.54 per cent higher at ₹159.50, on the BSE.