Renata to issue preference shares to slash bank loans

Renata is going to raise Tk 3.25 billion through preference shares to ease its finance cost burden by paying off short-term bank loans.
Against the backdrop of high interest rates, the drug manufacturer's finance costs shot up in the recent quarters, leading to erosion of its bottom-line growth.
The board of directors at a meeting on Saturday decided to issue preference shares subject to approval of the shareholders and the Bangladesh Securities and Exchange Commission.
Preference share, also known as preferred stock, is an exclusive share option which enables shareholders to receive dividends announced by the company before the equity shareholders.
Preferred shares typically pay steady dividends, while common stock only pays dividends if they are approved by the board of directors based on financial performance of the firm.
To receive shareholders' approval, Renata will hold an extraordinary general meeting (EGM) on January 12 next year. The record date is December 12.
Company secretary Md Jubayer Alam said the board decided to pay off its short-term loans partially with funds to be collected through the preference shares.
He, however, refused to give details -- tenure of and interest rates against preference shares.
"We will give details after the record date," said Mr Alam.
Renata's short-term debts amount to around Tk 13 billion while long-term loans are worth Tk 5.83 billion as of September this year.
City Bank Capital Resources is working as the issue manager of the preference shares.
In June this year, the company secured a $60 million loan from the US-based International Finance Corporation (IFC) to increase its working capital.
Five months earlier in January, the securities regulator allowed the company to issue five-year bonds worth Tk 6.60 billion. It also allowed the company to issue preference shares equivalent to Tk 3.5 billion in March this year.
The company contemplated an offer of 10 percent annual yield against zero coupon bonds and decided dividends against preference shares in sync with the bond yields.
But the rising interest rates of risk-free Treasury bonds had made it harder to attract investors to corporate debt securities. Return against T-bonds had already surpassed 14 per cent.
Hence, Renata could not complete the subscription of preference shares and zero coupon bonds.
"This time, we are planning to offer a lucrative return against preference shares," said the company secretary.
With the rise in interest rate, the company's net finance costs jumped 64 per cent year-on-year to Tk 443 million in the July-September quarter of FY25.
Subsequently, the profit plunged 43 per cent year-on-year to Tk 574 million in the quarter through September this year.
The nature of preference shares is non-cumulative, redeemable or fully convertible and non-participative in nature.
That means, on maturity, the company will repurchase its shares from the investors. For the shares being cumulative, the company is liable to pay shareholders outstanding dividends in arrears.
Owing to the shares being non-participating, shareholders of the stocks will not be entitled to any surplus profit other than the promised dividends.
The drug maker secured a net profit of Tk 3.62 billion in FY24, making a 55 per cent jump over the year before, supported by higher exports and cost optimization measures.
Based on the profit, the company declared a 92 per cent cash dividend for FY24, up from 62.5 per cent for the previous year.

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