Non-convertible redeemable preference shares (NCRPS) are a type of preference shares issued by a company as a part of its share capital. Let's break down the key features and characteristics of Non-Convertible Redeemable Preference Shares:
Preference Shares: Like all preference shares, NCRPS holders have a preferential right over equity shareholders regarding the payment of dividends and return of capital in the event of liquidation. Unlike equity shareholders, preference shareholders typically do not have voting rights.
Non-Convertible: This means that these preference shares cannot be converted into equity shares at any point in the future. The holder retains the right to receive fixed dividends and does not have the option to convert the shares into ordinary equity shares.
Redeemable: Redeemable preference shares have a fixed maturity date, at which point the issuing company has the option to buy back the shares at a predetermined price. The redemption can be done either in installments or as a lump sum, depending on the terms and conditions specified at the time of issuance.
Dividends: NCRPS holders receive a fixed rate of dividend, and this dividend is paid out before any dividends are distributed to equity shareholders. The dividend rate is predetermined and does not change, offering stability to investors.
Capital Structure: Companies issue NCRPS as a way to raise long-term capital without diluting the ownership control of existing shareholders. These shares contribute to the capital structure of the company and may be attractive to investors seeking a fixed-income investment.
Risk and Return: While NCRPS offers a fixed income in the form of dividends, they are still considered riskier than debt instruments because dividends are not guaranteed. If the company faces financial difficulties, it may choose to skip or defer dividend payments.
Legal Framework: The issuance and terms of NCRPS are governed by the Companies Act and other applicable regulatory guidelines. Companies need to comply with these regulations when issuing preference shares.
Listing: NCRPS may or may not be listed on stock exchanges. If listed, investors can trade them on the exchange, providing liquidity.
Investors considering NCRPS should carefully review the terms and conditions of the shares, including the fixed dividend rate, redemption terms, and any other specific features outlined in the offering documents.
The Securities and Exchange Board of India (SEBI) recently proposed to permit companies to issue non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) with the face value of Rs. 10,000 as against the current system of Rs one lakh face value.
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