Page 71 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes holder has an option to sell back the SPN to the company at par value after the lock in period. If
the holder exercises this option, no interest/premium will be paid on redemption. In case the
SPN holder holds it further, the holder will be repaid the principal amount along with the
additional amount of interest/premium on redemption in installments as decided by the company.
The conversion of detachable warrants into equity shares will have to be done within the time
limit notified by the company.

Example: TISCO issued warrants for the first time in India in the year 1992 to raise 1212
crore.

Deep Discount Bonds

A bond that sells at a significant discount from par value and has no coupon rate or lower
coupon rate than the prevailing rates of fixed-income securities with a similar risk profile. They
are designed to meet the long term funds requirements of the issuer and investors who are not
looking for immediate return and can be sold with a long maturity of 25-30 years at a deep
discount on the face value of debentures.

Example: IDBI deep discount bonds for ` 1 lac repayable after 25 years were sold at a
discount price of ` 2,700.

Equity Shares with Detachable Warrants

A warrant is a security issued by company entitling the holder to buy a given number of shares
of stock at a stipulated price during a specified period. These warrants are separately registered
with the stock exchanges and traded separately. Warrants are frequently attached to bonds or
preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends.

Example: Essar Gujarat, Ranbaxy, Reliance issue this type of instrument.
Fully Convertible Debentures with Interest

This is a debt instrument that is fully converted over a specified period into equity shares. The
conversion can be in one or several phases. When the instrument is a pure debt instrument,
interest is paid to the investor. After conversion, interest payments cease on the portion that is
converted. If project finance is raised through an FCD issue, the investor can earn interest even
when the project is under implementation. Once the project is operational, the investor can
participate in the profits through share price appreciation and dividend payments.

Equipref

They are fully convertible cumulative preference shares. This instrument is divided into 2 parts
namely Part A & Part B. Part A is convertible into equity shares automatically /compulsorily on
date of allotment without any application by the allottee.
Part B is redeemed at par or converted into equity after a lock in period at the option of the
investor, at a price 30% lower than the average market price.

Sweat Equity Shares

The phrase `sweat equity' refers to equity shares given to the company's employees on favorable
terms, in recognition of their work. Sweat equity usually takes the form of giving options to

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