The company, Tata Power, has hired Standard Chartered Bank and Yes Bank to bring out the perpetual bonds.
These are unique debentures as they are perpetual in nature with no maturity or redemption. They are callable only when the company deems so.
The coupon on Debentures is set at 11.4% per annum with a step up provision if the debentures are not called after 10 years.
And in terms of preference, these debentures rank senior only to share capital of the company. Which gives these investments an equity characteristics to these 'hybrid' debentures.
The rating agency Crisil has rated the instrument as AA/positive. Another rating agency CARE has given the rating of CARE AA for the instrument.
In the press release, S Ramakrishnan, Executive Director-Finance, Tata-Power said: “The issuance of these perpetual Debentures is an important step in the overall financing strategy and capital structure management of Tata Power."
He further added: “As Tata Power continues to develop and execute its significant growth plans, this innovative long term funding with equity features but without the associated economic dilutionhelps to diversify our financing options."
To give a clear view on perpetual bond is difficult at this time. Since this will perhaps be the first of its kind in India. But considering that the call option lies with the company, and add to it the factor that their claim level is just above equity does make it a risky proposition for an investor.