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SECURED PREMIUM NOTES

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Secured premium notes (SPN) is an instrument which has combined features of equity and debt instruments. SPN is nothing but a share warrant which is generally issued by the listed companies after getting the approval from the Central Government. The Companies issue SPN to meet their long – term and short – term funds requirements. 

Secured premium notes (SPN) are financial instruments which are issue with detachable warrants and are redeemable after certain period. In other words, SPN is a kind of non – convertible debenture (NCD) attached with share warrant. It can be redeemed after lock – in period and SPN holders will get principal amount with interest on instalment basis after lock – in period of total period for which SPN has been issued. However, during the lock – in – period no interest is paid. 

Case Study: TISCO (Tata Iron and Steel Company)  TISCO took the lead in July, 1992 by making a mega rights issue of equity shares and secured premium notes aggregating to Rs.1,212 crore. The face value of issued SPNs was Rs.300 each.  In this case, TISCO did not pay any interest on these notes during the first 3 years. Thereafter it redeemed the notes in four instalments of Rs.75 each from the end of the 4th year along with an equal amount of Rs.75 being a fixed interest and premium on redemption. Moreover, each investor was given a warrant along with his/her SPNs, against which he/she can buy a fully paid up equity share in the period of one and half years from the date of allotment. 

Lock – in period for SPN: SPN can be issued by the companies with the lock – in period for 4 to 7 years. This means an investor can redeem his SPN after lock – in period. SPN holders will get principal amount with interest on installment basis after lock – in period of said period. However, during the lock – in period no interest is paid.

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