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Potential risk that Gemini Sea Food's bonus shares pose

FE REPORT | January 02, 2025 00:00:00


Gemini Sea Food's paid-up will get a boost as it has received permission from the regulator to issue stock dividends, but the latest quarter's loss will prove to be a warning sign if it continues to be in the red.

The shrimp exporter will provide shareholders with a 7.5 per cent stock dividend for FY24, having already disbursed a 7.5 per cent cash dividend for the year.

The company has shown a loss of Tk 24.53 million for the first quarter through September of FY25, which eroded owners' equity by 11 per cent to Tk 186 million. The additional paid-up for the time being will act as a bulwark against a further reduction of the owner's stake.

However, it will also dilute the EPS. If the business keeps running with losses, general shareholders will not get any benefit from the extra shares. The possibility seems greater as the company's profit plunged 47 per cent year-on-year to Tk 50 million in FY24.

Currently, Gemini Sea Food has 10.68 million shares in the market. After the issuance of the bonus shares, the total number of shares will rise to 11.49 million.

So, their paid-up capital will increase from Tk 107 million to Tk 115 million.

The Bangladesh Securities and Exchange Commission approved the stock dividend on the last day of 2024, according to a stock exchange filing.

The securities regulator discourages stock dividends usually when a company hides the real situation of its business by declaring stock dividends. A declaration of bonus shares may convince investors into thinking that the company has the potential to grow but financial performance may not justify an increase in the number of shares.

Excessive stock issuance also risks oversupply of shares in the market, which causes a decline in the demand and drives down the share price.

The record date for Gemini Sea Food's cash dividend is January 7.

After the latest disclosure, the stock rose 4.44 per cent to Tk 171.70 per share on the Dhaka Stock Exchange on Wednesday.

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