NTPC - Bonus Debentures Quid Pro Quo; Event Update::Edelweiss report link

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NTPC has announced issue of debentures in the ratio of 1 debenture of INR12.5 for 1 equity share. As a result, free reserves of ~INR103bn will get converted into loans. The coupon (expected at ~8.4%) on the debentures would be fixed for the entire tenure with repayment in tranches at end of the eighth, ninth and tenth year. The allotment process is expected to conclude by March 2015. Since the debt:equity ratio continues to be less than 1 and recurring earnings of ~INR90bn more than sufficient to fund organic capex, we believe this will neither impact recurring dividend nor acquisition of assets. The bonus issue reiterates our stance of better utilisation of surplus cash and rewarding shareholders.

Debentures to shareholders via special dividend 

The NTPC board has approved a scheme of arrangement for issuance of secured, non-cumulative, non-convertible, redeemable, taxable fully paid-up 8.24bn bonus debentures amounting to INR103bn (face value of INR12.50 each against each equity share held by existing shareholders) by utilising its free reserves. The amount will be utilised for acquisition of assets and planned capital expenditure for ongoing power and coal mining projects. The debentures will be listed on the stock exchanges and carry a coupon rate determined as the average G-Sec rate for five working days preceding the record date plus 50bps (the rate determined to remain fixed throughout the tenure) to be paid annually (taxable).  Further, the debentures will be redeemed in three installments from the date of allotment - INR2.5 at end of the eighth year, INR5 at end of the ninth year and remaining INR5 at end of the tenth year. This will largely meet NTPC’s debt requirement to fund FY16E capex in turn limiting near-term borrowing requirement.

LINK

https://www.edelweiss.in/research/NTPC--Bonus-Debentures-Quid-Pro-Quo;-Event-Update/27898.html