FMCG major, Hindustan Lever Limited (HLL), has finally announced details of its bonus debenture issue to existing shareholders. The salient features of the plan remain the same, i.e. HLL will issue debentures worth Rs 6 face value bearing 9% interest rate for every share held.
That means it will issue approximately 2201.2 m debentures at 9% coupon rate to existing shareholders, to be redeemed after 18 months of issue in one instalment. This outlay will set the companyís reserves back by around Rs 13,207 m. The estimated reserves of the company stand at Rs 30,431 m at the end of December 31, 2002.
Since the company realises that the shareholders will have to shell out dividend tax on this scheme, the management has decided to announce another Rs 2.76 per share as additional dividend. Based on HLLís press release, it seems that this special dividend has been announced so as to utilise it towards TDS under new dividend tax law. So net, net, the effort of management is to get atleast Rs 6 per share in the hands of every HLL shareholder. To quote the managementís press release ďAll members would be able to discharge their tax liability on the Bonus Debentures and Special Dividend both in terms of TDS and the Advance Tax payment from and out of the quantum of Special Dividend.Ē
This special dividend will mean an outgo of approximately another Rs 6,080 m. So overall, HLLís reserves will decline by nearly Rs 19,287 m. With this HLL has made an effort to silence criticism from investors about its passive burgeoning cash flows. We estimate as a result of this move, HLLís return on net worth (RONW) which stood at around 54% in FY02, will shoot up to approximately 90% in FY03.
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