Renata fears further interest rate spike, to issue bonds to pay off bank loans

Renata is going to issue five-year zero coupon bonds to collect Tk 6.6 billion to alleviate its finance cost burden by paying off short-term bank loans.
It believes the bonds to be sold at around 9 per cent discount rate will cushion the business against further hikes of lending rates.
The Bangladesh Securities and Exchange Commission (BSEC) gave its permission on Thursday to the drug maker for selling debt securities to banks, non-banking financial institutions, insurers, institutional investors, and high net worth individuals through private placements.
The company's borrowing cost already escalated 96 per cent year-on-year to Tk 851.87 million in FY23, as it had taken out fresh loans ahead of the withdrawal of the 9 per cent lending rate cap in June 2023.
Since the cap was replaced with a reference rate called SMART (six-month moving average rate of Treasury bills), the maximum lending rate has been increasing.
It rose to 11.89 per cent for January based on the SMART rate of 8.14 per cent and an interest margin of 3.75 per cent.
The lending rate is likely to go up further as the reference rate is going to be revised from time to time. It can also rise if the central bank tightens its grip on money flow through the upcoming monetary policy.
Renata has already been paying back loans at a higher interest rate.
Its profit plunged 54 per cent to Tk 2.34 billion in FY23, compared to the previous fiscal year. A rise in finance expenditure due to bank loans is feared to cut a bigger pie of the revenue in FY24.
That is why the drug maker has decided to clear bank dues of around Tk 7 billion with the money to be raised by issuing bonds.
"The company will get rid of the extra burden of finance costs," said Md. Jubayer Alam, company secretary of Renata.
The zero-coupon bonds will keep the borrowing cost static, he said, which will be redeemed at the face value on maturity.
The decision to issue bonds comes at a time when the pharmaceutical company sees higher raw material prices and a steep depreciation of the taka against the dollar dragging income.
Company officials said that after the repayment of the short-term loans the company would get back on its growth trajectory.
As per the regulatory approval, the offer price of the bonds will be Tk 0.1 million per unit.
BRAC EPL Investments and City Bank Capital Resources are working as trustee and fund arranger of the bond that is fully redeemable.
To meet the regulatory conditions, the bond will be listed on the exchange's alternative trading board.
Meanwhile, the stock of Renata has been languishing at the floor price of Tk 1217.9 since the second week of November 2022.

[email protected]