A case for PSU bonus debentures

It may well be the solution to exceed divestment targets and pump-prime the economy

Private equity firms use a concept called dividend recapitalisation, as a means of generating returns earlier than the original investment horizon. In India, we have seen a smattering of cases where bonus debentures have been issued, essentially meeting objectives similar to that of a dividend recapitalisation exercise.

An issuance of bonus debentures has the following aspects:

A. Capitalises reserves on a balance sheet — i.e. reduces reserves and increases debt of a like amount — by distribution of those debentures to shareholders of the company; the traditional bonus issue meant the capitalisation of reserves to issue equity shares, for free, to