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MUMBAI, May 20

HINDUSTAN Lever Ltd (HLL) has altered the earlier announced bonus debenture scheme, including a special dividend of Rs 2.76 per share, to the existing proposal of a bonus debenture of Rs 6 per share.

In the altered scheme, the entire tax on bonus debenture and special dividend will be deducted out of the Rs 2.76 special dividend, ensuring that the face value of the bonus debenture is uniform at Rs 6, HLL said.

The company will draw upon its general reserves to the extent of Rs 1,320 crore towards bonus debentures and will draw upon its profit and loss balance to the extent of Rs 608 crore towards the special dividend. The new scheme entails an incremental cost of Rs 473 crore.

The changes have been necessitated on account of the revised tax regime under the Finance Bill of 2002-2003 approved by Parliament, HLL said in a press release.

According to company sources, the special dividend of Rs 2.76 per share has been arrived at assuming that shareholders are in the highest tax bracket of 31.5 per cent. For shareholders in the highest tax bracket of 31.5 per cent, the revised scheme is self-financing one as the entire amount of special dividend would go as tax for the entire bonus debenture scheme, thereby leaving the bonus debenture unchanged at Rs 6 per share.

Under the revised tax regime, bonus debentures construed as `deemed dividend' for tax purposes, would now be taxable at the hands of the shareholders.

The company will have the obligation to make tax deduction at source at rates prescribed for varying classes of shareholders. Under the earlier bonus debenture scheme, HLL was to draw upon its general reserves to the tune of Rs 1,455 crore, which includes Rs 1,320 crore towards the bonus debentures and Rs 135 crore as dividend distribution tax. The amount of Rs 135 crore will not be debited from the company's general reserve as it does not have to pay dividend distribution tax under the revised tax regimes.

The special dividend of Rs 2.76 per share involves a payout of approximately Rs 608 crore. Adjusting for non-applicability of the dividend distribution tax, the company is committing itself to an incremental outlay of about Rs 473 crore. As regards the debentures, they would be redeemed after 18 months in one instalment instead of in two equal instalments after 24 and 36 months as was originally proposed.

The interest on debentures has been retained at nine per cent per annum payable in arrears as in the original scheme.

The grant price of the options issued to the management employees will be reduced by Rs 8.76 to reflect the exceptional nature of the payment. The options will not qualify either for bonus debentures or special dividend, HLL said.

According to the company, the new scheme which self-finances shareholders' tax outgo will benefit small shareholders. "Almost half of HLL's shareholders are small shareholders with holdings below 150 shares. Even shareholders who would have to pay tax will not be required to pay any tax out of their own pocket. They can pay the entire tax out of the total quantum of special dividend," HLL said.

According to analysts, the altered scheme is beneficial to shareholders. The new scheme is subject to fresh approvals from HLL shareholders and the Bombay High Court.

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