Renata plans to shed its loan burden further by issuing five-year preference shares, having witnessed profit erosion in FY23 and the first half of FY24 mainly due to a jump in its finance costs.
It received approval of the Bangladesh Securities and Exchange Commission (BSEC) on Thursday for issuing preference shares months after it had got permission to release bonds.
The leading drug maker will repay part of its bank loans with Tk 3.5 billion to be raised through preference shares against the backdrop of rising interest rates.
Dividends against the non-convertible and redeemable preference shares, which will be expected to be paid before common stock dividends, will be 9-10 per cent.
Md. Jubayer Alam, company secretary of Renata, said they were contemplating an offer of 10 per cent annual yield against zero coupon bonds and decided dividends against preference shares in sync with the bond yield.
He also said the company expected investors to invest in the shares and bonds given its reputation.
Renata's board of directors last year approved two proposals -- one to issue zero coupon bonds and another to float preference shares. Funds worth Tk 8.5 billion in total will be collected through bonds and preference shares.
The drug maker has taken the move at a time when many other companies have considered plans to cut down borrowing costs and have even revised proposals to issue corporate bonds with a higher interest rate to attract investors.
Rising interest rates of risk-free Treasury bonds has made it harder to draw investors to corporate debt securities. Return against T-bonds has already surpassed 11 per cent.
After replacement of the lending rate cap with a reference rate called SMART (six-month moving average rate of Treasury bills), the lending rate has been going up.
Renata has already been paying back loans at a higher interest rate.
The company's finance cost jumped 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.
Profit plunged 54 per cent to Tk 2.34 billion in FY23, compared to the previous fiscal year.
In the first half of FY24, the finance cost was Tk 571.12 million, up from Tk 567.64 million reported for the same period of the previous fiscal year.
Increased finance costs have been eroding the company's profits significantly.
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