Mumbai, March 29: Dr Reddy’s Laboratories is mulling an issue of bonus debentures — an instrument to reward shareholders that has been used very sparingly.

The Hyderabad-based pharmaceutical giant informed stock exchanges today that its board would meet on March 31 to consider a proposal to issue bonus debentures.

Last week, Britannia announced a Rs 400-crore reward programme for its shareholders using the same instrument.

The bonus debenture has been used rarely. Hindustan Unilever was the first major listed company to issue bonus debentures in 2001. Astra Zeneca has also used the same instrument of reward.

Bonus debentures are instruments issued by companies from their general cash reserves to their shareholders.

Like bonus shares, these debentures are issued for free. Similar to other debentures, the bonus debentures carry a face value and companies pay an interest rate to its holders at fixed intervals and they are redeemed after a fixed period.

Companies usually issue bonus shares to reward shareholders.

HUL (then called Hindustan Lever) had issued bonus debentures with a face value of Rs 6 which carried an interest rate of 9 per cent per annum payable annually. Around three years back, Astra Zeneca Pharma India also rewarded its shareholders with a bonus debenture carrying an interest rate of 8 per cent.

Recently, the board of Britannia Industries had approved the allotment of around 2.39 crore bonus debentures of Rs 170 each. Its debentures, which have a tenure of three years, carry an interest of 8.25 per cent per annum payable annually.

While details of the DRL bonus debenture issue will be known on March 31, the announcement failed to lift its shares at the stock exchanges today. On the BSE, the Dr Reddy’s scrip dipped 1.22 per cent to Rs 1,268.65.

Analysts said bonus debentures had a few advantages. The issue of these debentures allows the company to keep its cash with itself until its time for redemption. The cash can be ploughed back into the business or used for a potential acquisition.

Unlike a bonus issue, there is no increase in the company’s equity capital. The analyst, however, added that a bonus debenture would impact the company’s future earnings since it had to pay interest on them.