A capital debenture is a method by which CDNIS can raise funds for its capital requirements. It is an obligation of CDNIS to repay the debenture holder, without interest, the face value of the debenture.
Under normal circumstances, CDNIS will not redeem the debenture. The general practice is that holders will transfer their debenture to new parents to recoup their investment.
This program is an important element in raising capital to building the campus at the Site.
In 1993, John Crawford proposed the Debenture Program as a structured scheme to enable CDNIS to raise large amounts of capital on an extended basis. This program was to replace the Nomination Rights Program started by the Founding Members.
Another key member of the Debenture Committee was Eric Kong, a lawyer by profession. John and Eric became the core members of the Debenture Committee to develop the Debenture Program. Key features of the Debenture Program were as follows:
(i) The debenture price was to start at a level appropriate to the size and stature of CDNIS at the time and the program also provided for the conversion and phasing out of the Nomination Rights Program;
(ii) A key marketing strategy was to limit sales to small tranches which would encourage purchases before prices increased;
(iii) Another key element to the program was the structuring of the Annual Capital Levy. All parents who did not hold a debenture was required to pay a Capital Levy. The level of the Capital Levy was set to coincide with the debenture sale prices so that debenture holders were given an approximate 9% return by exemption from paying the Capital Levy;
(iv) By allowing for the controlled transfer of Capital Debentures and raising prices with subsequent tranches in a controlled manner, an additional marketing feature was created; and
(v) Transfer fee is charged at 50% of the appreciation in market transfer prices over the original prices to give additional income to CDNIS.
By adopting the Debenture Program and maintaining the number of debentures issued to the number of parents paying the Capital Levies in a pre-determined ratio of 50:50, CDNIS was able to secure large capital funding and revenue from their transfers as well as from the Capital Levy to meet Capital debt requirements.
This is an important program to allow CDNIS to raise and supplement capital to complete the campus and meet its capital indebtedness.