Increase in Authorised Capital?

vasa1 · #1 15th December 2009, 04:14 PM

Quote:

2. Considered and approved, the proposal of "Increase in Authorised Capital of the Company" from Rs. 100/- Crores (Rupees one hundred crores only) divided into 10 crores shares of Rs. 10/- each, to Rs. 300/- Crores (Rupees three hundred crores only) divided into 30 crores shares of Rs. 10/- each, subject to the approval of the Shareholders of the Company in its General Body Meeting.

Source

Why do companies need to do this?

Alchemist · #2 15th December 2009, 04:42 PM

If a company wants to issue new shares and the number of already issued shares, is close to the "Authorised Capital", the company may have to increase the "Authorised Capital" so that this limit is not exceeded.

In case of Engineers India, I am not sure why the company wants to increase the Authorised Capital.

As per NSE's site, the company has only issued 5.62 crore shares against an Authorised Capital limit of 10 crore shares.

Even if the company wants to issue some additional shares, it can do it without exceeding the Authorised Capital limit.

Maybe the management is thinking of a bonus issue in future.

Something like 1:1 bonus.

Quote:

Guidelines issue by SEBI must be complied with. Care must be taken that issue of bonus shares does not lead to total share capital in excess of the authorized share capital. Otherwise, the authorized capital must be increased by amending the capital clause of the Memorandum of association.

Source.

vasa1 · #3 15th December 2009, 06:07 PM

Quote:

Originally Posted by Alchemist

If a company wants to issue new shares and the number of already issued shares, is close to the "Authorised Capital", the company may have to increase the "Authorised Capital" so that this limit is not exceeded.

In case of Engineers India, I am not sure why the company wants to increase the Authorised Capital.

As per NSE's site, the company has only issued 5.62 crore shares against an Authorised Capital limit of 10 crore shares.

Even if the company wants to issue some additional shares, it can do it without exceeding the Authorised Capital limit.

Maybe the management is thinking of a bonus issue in future.

Something like 1:1 bonus.

Source.

EIL is cash-rich so a bonus is a distinct possibility.

Quote:

Even if the company wants to issue some additional shares, it can do it without exceeding the Authorised Capital limit.

But suppose a bonus is not on the cards, are you saying that the existing Authorised Capital is enough to accommodate a 10% divestment by issuance of new shares assuming they don't want to sell existing shares? (As you can guess, I don't understand the nuts and bolts here!)

Alchemist · #4 15th December 2009, 06:21 PM

Quote:

Originally Posted by vasa1

EIL is cash-rich so a bonus is a distinct possibility.

But suppose a bonus is not on the cards, are you saying that the existing Authorised Capital is enough to accommodate a 10% divestment by issuance of new shares assuming they don't want to sell existing shares? (As you can guess, I don't understand the nuts and bolts here!)

Disinvestment by the government doesn't change the number of shares of a company.

It only means government is selling some shares to raise cash.

The number of shares go up only when the company issues (creates) new shares and absorbs the money.

If the company is already cash-rich (as you say), then it won't be issuing new shares in the near future.

A bonus is still possible.

vasa1 · #5 15th December 2009, 06:28 PM

Quote:

Originally Posted by Alchemist

Disinvestment by the government doesn't change the number of shares of a company.

It only means government is selling some shares to raise cash.

The number of shares go up only when the company issues (creates) new shares and absorbs the money.
....

Alchemist, I think there have been recent examples where both a stake sale and fresh shares have been part of the disinvestment. I'll have to look see this to confirm.

vasa1 · #6 15th December 2009, 06:37 PM

Quote:

The NHPC IPO opened on 7 August 2009 and closed on 12 August 2009. The public offer was a mix of a fresh issue of equity shares and sale of shares by the government.

Post IPO, the government holds a little over 86% in NHPC.

Source

This wasn't listed at all so I don't know if that makes a difference.

Alchemist · #7 15th December 2009, 09:07 PM

Quote:

Originally Posted by vasa1

Source

This wasn't listed at all so I don't know if that makes a difference.

listed or unlisted doesn't make a difference.

for all listed/unlisted companies, issued capital can't be more than the authorized capital.

if a company is going to issue new shares in any way (FPO, IPO, private placement etc), the company has to make sure that the post-issue issued capital doesn't exceed the authorized capital.

vasa1 · #8 16th December 2009, 10:05 AM

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vasa1 · #9 16th December 2009, 10:47 AM

Quote:

Originally Posted by Alchemist

....
Maybe the management is thinking of a bonus issue in future.

Something like 1:1 bonus.
...

They had last increased their authorised capital in the late 1990's
for a 2:1 bonus

.

I wonder what the time-frame is for such things. (I am a chotta investor here.)