Power Grid to issue shares for accounting adjustment of long-held govt investment

To comply partially with a three-year-old order by the Financial Reporting Council (FRC), state-run electricity transmission and distribution service provider Power Grid Company has decided to issue shares against funds received from the government.
At a meeting on Tuesday, it decided to issue 201.08 million ordinary shares at a Tk 10 premium to Tk 20 each and 7.64 billion irredeemable and non-cumulative preference shares at a face value of Tk 10 in favour of the power division secretary.
Hence, the total value of ordinary shares will be Tk 4.02 billion, which is insignificant compared to the value of preference shares at Tk 76.41 billion.
The board of the company prefers to issue a higher number of preference shares than ordinary shares to ensure that existing shareholders are not affected, said a company official, asking not to be named.
Only ordinary shares boost the paid-up capital. Preference shares or preferred stock oblige the company to pay dividends to shareholders before common stock dividends are issued.
In a 2020 gazette, the FRC directed state-run companies to convert share money deposits into paid-up capital against the backdrop of such funds piling up in huge amounts with them.
It also made it mandatory that share money deposit is incorporated into paid-up capital within six months after the money is deposited in a company's bank account in order to prevent fund anomalies.
The directive was given because the government had been and still is deprived of dividends in return for its equity investment.
Share money deposit is the money paid in exchange for shares that have not been acquired yet.
According to the company's audited financial statement for FY22, Power Grid received Tk 80.43 billion in total from the government as share money deposits for different project implementation since its inception in 2000.
The fund was given in a ratio of 60 per cent equity and 40 per cent loan.
Implications of additional shares
There will be no business expansion or no new investment but the number of shares will be increased, which will affect the existing shareholders, said Md Sajedul Islam, senior vice president of the DSE Brokers Association of Bangladesh.
This might affect the company's dividend payout ability for general shareholders, said Professor Dr Subarna Barua, of the international business department at the University of Dhaka.
Although preference shares will not enhance the size of the equity, the huge number of shares may raise fixed payment liabilities for the company in future, he said.
However, it needs to be taken into consideration that the money already paid as a share money deposit has contributed to investment expansion over the last decade. In other words, benefits from the investment out of the share money deposit have already been enjoyed by investors, Mr Barua added.
The company also decided to increase its authorized capital to Tk 150 billion from existing Tk 100 billion.
To receive shareholders approval, the company will hold an extraordinary general meeting (EGM) on September 2 virtually. The record date is July 13.
FINANCIAL PERFORMANCE
Power Grid suffered losses for the past two consecutive quarters of FY23, owing to the US dollar becoming stronger against the taka.
As a result, it incurred a loss of Tk 3.32 billion in the nine months through March this year as opposed to a profit of Tk 2.79 billion in the same period the year before.
The company's profit was also 64 per cent lower to Tk 1.23 billion in FY22, compared to the previous year.
The stock, meanwhile, has been stuck at the floor price of Tk 52.40 on the Dhaka Stock Exchange since October last year.