Renata's debt-reduction strategy may spur new entrants to secondary market

Renata's listed preference shares, offering a 15 per cent return, may serve as an example for other companies seeking to reduce debt burdens while strengthening investor confidence.
To replace high-cost short-term loans with lower-cost, long-term funding, the drug manufacturer issued preference shares worth Tk 3.25 billion through private placement. The shares made their debut on the Alternative Trading Board (ATB) of the Dhaka Stock Exchange (DSE) on Monday.
"The listing of Renata's preference shares has created an opportunity for trading a new product on the Dhaka Stock Exchange," said Mohammad Asadur Rahman, acting managing director of the DSE, at the launch event.
While working to ease its debt pressure, Renata is confident that its financial position will visibly improve over the next one to two years, supported by changes to its financial strategy, said Syed S. Kaiser Kabir, managing director of the drug maker.
Renata's preference shares are described as "hybrid" instruments, as they combine features of both equity and debt. They will pay fixed dividends, but the holders will not have voting rights.
Each preference share has a face value of Tk 1,900 and can be converted into ordinary shares at a fixed conversion price of Tk 475 per share in four phases, with 25 per cent of the holdings convertible each time. The conversion will begin three years after the issuance. Until conversion, preference shareholders will receive the annual fixed return.
The structure offers flexibility, acting like equity while carrying bond-like characteristics. From the issuer's perspective, preference shares allow risk-sharing, as there is no obligation to pay dividends in the absence of profit.
Renata, however, expects a relatively quick recovery to the strong financial position it enjoyed five years ago, Mr Kabir said.
According to Mr Rahman of the DSE, Renata strategically issued the hybrid instrument to maintain its leverage ratio by striking a balance between equity and debt.
He expressed hope that the example set by Renata would encourage other companies to raise capital through preference shares, benefiting both issuers and investors and contributing to the expansion of the country's capital market.
Explaining the background to the issuance, Mr Kabir said Renata had earned more than Tk 5 billion in net profit five years ago, but profit declined to Tk 2.20 billion in FY25 due mainly to high finance costs.
Apart from rising financing expenses, the company could not increase product prices during that period, which also contributed to lower profitability, he said.
Mr Kabir was speaking at the debut trading ceremony of Renata's preference shares on the ATB, the first such listing in the country's secondary market.
He said the decision to issue preference shares followed a complex and challenging process. Five years ago, Renata projected strong demand growth and decided to expand production capacity through an investment of Tk 10 billion, financed by internal profits and short-term bank loans.
However, a sudden and sharp currency devaluation significantly increased the planned investment cost. "While the initial investment amount was set at around Tk 10 billion, it ballooned to around Tk 15 billion, which was completely unexpected," Mr Kabir said.
The rapid devaluation forced the company to rely on debt, despite having remained largely debt-free for a long period. To overcome the situation, Renata opted for an alternative financing structure.
"Since issuing rights shares would have significantly diluted the ownership of the majority shareholder, preference shares were considered an appropriate solution," Mr Kabir said.
He noted that the dividend rate of the preference shares was determined based on Treasury bonds' reference rates, which are generally regarded as risk-free. However, he expressed dissatisfaction that the issuance process took about nine months.
"During that time, although Treasury bond interest rates declined, the effective return on preference shares remained at 15 per cent, which is very attractive for investors," he said.
Renata was once known for its strong margins and debt-free balance sheet, and returning to that position requires easing debt pressure, Mr Kabir added. He expressed hope that more innovative financial instruments would be introduced in the market to support sustainable capital market development and stronger corporate balance sheets.
DSE Chairman Mominul Islam said the financial health of many otherwise strong companies had weakened in recent years due to post-Covid-19 shocks, geopolitical instability, macroeconomic pressures, currency devaluation and rising interest rates.
"To overcome this situation, it is important to reduce dependence on banks and make greater use of the capital market," he said, adding that IPOs, preference shares and long-term debt instruments could play a significant role.
He described Renata's initiative as a positive example that could encourage other companies to gradually reduce debt pressure and restore financial stability.
Preference shares and bonds are effective tools for regular and recurring financing for large corporations, Mr Islam said, noting that the market would increasingly assess repayment compliance, which would strengthen investor confidence.
The DSE is working to reduce overdependence on the banking sector and promote capital market-based financing, with coordinated efforts involving the Bangladesh Securities and Exchange Commission, Bangladesh Bank, and market intermediaries.
As part of these efforts, initiatives have been taken to encourage companies to list on the ATB, he said.

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