After Power Grid, the state-run Dhaka Electric Supply Company (DESCO) has decided to issue shares against funds received from the government to comply with a three-year-old directive from the Financial Reporting Council (FRC).
The DESCO board at a meeting on Tuesday decided to issue more than 607.69 million irredeemable and non-cumulative preference shares at the face value of Tk 10 each share in favour of the power division secretary, subject to the approval of shareholders in the annual general meeting and the securities regulator.
It prefers issuing preference shares to ordinary shares, considering that existing shareholders will not be affected, said a company official, asking for anonymity.
Only ordinary shares boost the paid-up capital. The preference shares or preferred stocks would require the company to pay dividends against those before giving common stock dividends.
Existing shareholders' return on investment would be slashed by the dividend payout to the government against preference shares, said Md Sajedul Islam, senior vice president of the DSE Brokers Association of Bangladesh.
The number of preference shares to be floated is nearly one and a half times the amount of ordinary shares of DESCO in the market.
Usually, the dividend payment is made at a fixed rate against preference shares, but in this case it will vary according to net profit.
As per a disclosure, the dividend will be determined by multiplying the ratio of preference share capital out of the total capital (ordinary share capital plus preference share capital) with 15 per cent of the profit after tax.
That means the lion's share of the profit will be distributed to general shareholders.
The company has not paid any dividend to the government yet, but after the issuance of preference shares, DSECO will have to start paying back.
Until now, general shareholders have reaped the benefit from investment of the share money deposit, said Mr Islam, of the brokers' association.
The preference shares will be non-cumulative in nature, meaning the government will not be entitled to missed dividends.
The government injected funds into DESCO on several occasions for the implementation of several projects since its inception in 1996. The funds were given at a ratio of 60 per cent equity and 40 per cent loan.
According to the company's audited financial statement for FY23, it had received more than Tk 6.10 billion in total from the government as share money deposit.
In a 2020 gazette, the FRC directed state-run entities to convert share money deposits into paid-up capital against the backdrop of such funds piling up.
Share money deposit is the money paid in exchange for shares that have not been acquired yet.
The FRC in the order said such funds should be incorporated into the share capital within six months after the money was deposited in a company's bank account in order to prevent fund anomalies.
The directive was given since the government had been and still is deprived of returns from its equity investment.
When asked if issuing preference shares will ensure compliance with the FRC order since the shares will not impact the paid-up capital, Managing Director of DESCO Kausar Ameer Ali said they had come up with the decision after consulting with the finance ministry.
The DESCO board on Tuesday also recommended restructuring its authorised capital. Tk 20 billion authorised capital should be divided into Tk 5 billion ordinary share capital and Tk 15 billion preference share capital, it said.
Financial Performance
DESCO endured a record loss in FY23 due to a significant jump in the exchange loss in foreign currency transactions, as the taka continued to depreciate against the dollar.
About 80 per cent of the annual loss of Tk 5.41 billion came from transactions in foreign currency. The company earned in the local currency but paid back debts in dollars.
The US dollar has appreciated more than 30 per cent against the taka since February last year, making DESCO pay Tk 4.28 billion in excess to lenders in FY23 against foreign debts equivalent to Tk 29 billion.
Though sales revenue rose 14 per cent year-on-year to Tk 53.72 billion in FY23, DESCO could not offset the loss because of the mismatch between the hikes in bulk electricity price and the price at the retail level.
Despite the huge loss, the company declared a 10 per cent cash dividend to general shareholders for FY23.
DESCO continued to make losses in July-September of FY24 for the same reasons.
The stock, meanwhile, has been stuck at the floor price of Tk 36.6 on the Dhaka Stock Exchange since September last year.
Power Grid
In June this year, Power Grid Company of Bangladesh, the state-run electricity transmission and distribution service provider, issued shares against share money deposits to comply with the FRC order.
The company issued 201.08 million ordinary shares at Tk 10 each share with a Tk 20 premium on the face value and 7.64 billion irredeemable and non-cumulative preference shares at the face value in favour of the power division secretary.
Hence, the total market value of ordinary shares stood at Tk 4.02 billion, which is insignificant compared to the value of preference shares at Tk 76.41 billion.
babulfexpress@gmail.com
farhan.fardaus@gmail.com