TVS Motors issuances of convertible preference shares as bonus instead of dividend

Recently, well known auto manufacturer announced the issuance of preference shares as a bonus to all equity shareholders.

- Anirudha Jain

In the past, many listed companies have issued preference shares as bonus. In this article we will try to analyze the different facets of issuing preference shares as a bonus.

TVS Motor Company Limited ("TVS" or "Company") is engaged in manufacturing two & three wheelers' vehicles. The Company has state of art manufacturing facilities in Hosur, Mysuru and Nalagarh in India and Karawang in Indonesia. The equity shares of the company are listed on nationwide bourses.

The Proposed Transaction

The Board of Directors of the Company at its meeting inter alia, has approved the Scheme of Arrangement between the Company and its shareholders under Sections 230 to 232 of the Companies Act, 2013 ("Scheme"), which, inter-alia, provides for issuance and allotment of cumulative non-convertible redeemable preference shares ("NCRPS") by way of bonus.

Bonus Ratio:

4 NCRPS (Cumulative non-convertible Preference Share) of INR 10/- each fully paid up of the Company for every 1 equity share of INR 1 each fully paid up held as on the Record Date.

The dividend rate will be 6% per annum.

The NCRPS shall be redeemed on the expiry of 12 months from the date of allotment of the said NCRPS.

Proposed to be listed on the NSE (National Stock Exchange of India) Limited and BSE (Bombay Stock Exchange) Limited i.e., the stock exchanges on which the equity shares of the Company are listed.

Rationale for issuance of bonus shares:

The company has built up substantial reserves over the years from its retained profit which is well above the company's current and likely business needs.

Accordingly, the company proposes to distribute surplus funds amongst shareholders.