HLL board to consider issuing bonus debentures

Hindustan Lever Limited (HLL) today notified the various Stock Exchanges that its Board would meet on October 16, 2001, inter alia, to consider a Scheme formulated under Section 391 to 394 of the Companies Act for issue of bonus debentures by drawing upon the General Reserves of the Company which have been created through retained earnings/ undistributed profits of the Company.

While the final decision on the proposed Scheme would be taken by the Board at its meeting on October 16, 2001 and is subject to such modifications as may be proposed by the Board, the Scheme that is being placed before the Board has the following salient features :

An amount of approx. Rs. 1320 Crores from the General Reserves would be utilised for issue and allotment of Debentures of the face value of Rs. 6/- each which would be issued and allotted to the existing members of the Company by way of Bonus Debentures in the ratio of one fully paid Debenture of Rs. 6/- each for every Re. 1/- equity share held in the Company on a record date to be fixed by the Board after the Scheme is sanctioned by the Bombay High Court. Such issue and allotment of Debentures would be considered as a ‘deemed dividend’ under he provisions of the Income Tax Act and the Company would bear and pay, in addition, dividend distribution tax at 10.2% on the said issue of Bonus Debentures from the General Reserves. Thus a total amount of approx. Rs. 1455 Crores would be utilised from the General Reserves.

The debentures would be secured and would be redeemable at par in two equal instalments on the second and third anniversary of the issue of debentures. The debentures would carry an interest rate of 9% per annum payable annually.

Since the debentures issued would be considered as ‘deemed dividend’ under the provisions of the Income Tax Act and as the company would bear and pay the necessary dividend distribution tax, the investment cost of the debentures at the hands of the shareholders would be the face value of the debentures.

The Company would post the Board approval make necessary applications pursuant to Section 391-394 of the Companies Act, 1956 to the High Court of Bombay and obtain its directions for convening a meeting of the shareholders of the Company to seek their consent for implementing the Scheme as outlined above or as modified by the Board in their meeting of October 16, 2001 for restructuring of General reserves as above. The Scheme has been constructed to enhance the efficiency of the balance sheet in the context of excess cash carried for several years and is equitable for all shareholders. This will not impair Company’s ability to execute a large acquisition should an opportunity arise.

The Chairman of HLL, Mr. M.S. Banga, will address the media immediately after the Board meeting on October 16, 2001, and elaborate on the subject.