When a company needs to raise capital, issuing ordinary equity shares is the most common route. However, a company's financial strategy often requires more diverse instruments. This is where securities like preference shares, bonds, and debentures play a crucial role, allowing companies to raise funds without diluting voting control or by taking on structured debt.
For investors, these instruments offer different risk-return profiles compared to traditional equity. Understanding how they work, and how they are identified for compliance, is essential for both the issuing company and the investor.
What Are Preference Shares?
Preference shares are a hybrid security, combining features of both equity and debt. Holders of preference shares are part-owners of the company, but with specific rights and limitations that give them "preference" over equity shareholders. Key features include a fixed dividend, priority in liquidation, and generally no voting rights.
What Are Bonds and Debentures?
Bonds and debentures are debt instruments, representing a loan made by an investor to the company. The holder is a lender, not an owner.
Bonds & Debentures: Both pay a fixed interest (coupon) and have a set maturity date when the principal is repaid. The primary difference often lies in security—debentures can be secured by company assets, while bonds are often unsecured but issued by entities with high credit ratings.
The Separate ISIN Requirement
A common point of confusion for companies is ISIN management. An ISIN (International Securities Identification Number) is a unique 12-character code that identifies a specific security.
It is crucial to understand that every type of security requires its own unique ISIN. If your company has already received an ISIN for its equity shares, you must apply for a new, separate ISIN for your preference shares, bonds, and debentures. This is because regulators and depositories treat each of them as distinct financial instruments.
The Process for Obtaining a New Security ISIN
Obtaining an ISIN for preference shares, bonds, or debentures involves a structured digital process with the depositories (NSDL/CDSL). Here are the key steps to follow:
Step 1: Create Maker & Checker Logins
The first step is to set up user credentials on the depository's portal. The system uses a "Maker and Checker" concept to ensure accuracy and security. The "Maker" is responsible for entering the application data, while the "Checker" is responsible for reviewing and authorizing the submission.
Step 2: Initiate the Application
Once logged in, navigate to the application section and begin the process for creating a new ISIN. You will need to fill in all the required details about the security being issued, such as dividend/coupon rate, type, and total capital value.
Step 3: Upload Required Documents
The depository will require a set of supporting documents. These typically include the board resolution for the issuance, an updated capital structure, and other corporate documents. Ensure all scans are clear and correctly labeled.
Step 4: Depository Approval and ISIN Issuance
After the "Checker" authorizes the application, it is submitted to the depository (NSDL or CDSL) for review. Once they approve the documentation and application details, the new ISIN will be generated and sent to the company via email.
What to Do After Receiving the ISIN
Receiving the ISIN is a critical milestone, but it's not the final step. To make the securities available for dematerialization, the company must then:
Pass a Corporate Action: The company needs to formally execute a corporate action to credit the securities to the respective investors' Demat accounts.
Enable Dematerialization: Once the corporate action is complete, investors can begin the process of dematerializing any physical certificates.
How Nextgen RTA Simplifies the Process
Managing multiple classes of securities and their corresponding ISINs adds complexity to a company's compliance functions.
At Nextgen Share Registry Pvt Ltd, we provide comprehensive RTA services to manage this seamlessly. We guide you through the entire ISIN generation process, from setting up maker-checker credentials to managing the final corporate action for preference shares, bonds, or debentures. Our expertise ensures that your company remains compliant, efficient, and investor-ready, no matter how diverse your capital structure becomes.