Salvo Chemical Industry will treat its general shareholders unfairly, analysts say, if it issues ordinary shares to sponsors at less than 20 per cent of the current market price.
The company belonging to the pharmaceuticals & chemicals sector has decided to issue 6.4 million ordinary shares at Tk 10 each to the existing sponsors and directors through private placement, according to a stock exchange (DSE) filing on Thursday.
Salvo Chemical Industry's closing price was Tk 54.90 per share on the Dhaka Stock Exchange (DSE) on Thursday. At present, it has 65.02 million outstanding shares in the market. The new shares after they are floated will be equivalent to 10 per cent of the total shares.
The increased number of shares will cause earnings dilution. Hence, general shareholders, who have a nearly 61 per cent stake in the company now, will have to share profits with sponsor-directors disproportionately.
Currently, sponsor-directors own a 25.18 per cent stake in the company, which indicates that the new shares are meant to raise their stake to meet the regulatory requirement of 30 per cent.
"There will be huge dilution in the earnings. General shareholders will be losers as sponsors and directors are getting shares cheaply," said Md Moniruzzaman, managing director & CEO of Prime Bank Securities Limited.
In many previous cases similar to this, shares were issued to sponsor-directors at a six-month average market price.
According to the filing, Tk 4.2 crore of the fund to be raised shall be utilised as working capital and the remaining portion will be spent on imports of machinery to ensure uninterrupted and smooth operation of the company.
Md. Saiful Alam, chief financial officer of Salvo Chemical Industry, told the FE, "We will issue new shares to sponsors and directors for compliance purpose."
But he refused to elaborate on that.
The board of directors of the company has also decided to change the name of the company to 'Salvo Chemical Industry PLC' from 'Salvo Chemical Industry Limited'.
To take permission of general shareholders, an Extraordinary General Meeting will be organised on July 18. The record date is June 20.
For the first nine months of FY24, the company showed a profit of Tk 128 million, 33 per cent higher than the previous year's annual income.
In FY23, Salvo Chemical earned Tk 96.61 million. The board paid 5 per cent cash dividends for the year.
Listed in 2011, the stock fell 3 per cent on Thursday to Tk 54.60 per share.
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