Berger Paints exempted from issuing rights share to big shareholders

Bangladesh Securities and Exchange Commission (BSEC) has exempted Berger Paints Bangladesh from issuing rights shares to its sponsors, directors and investors holding 5% and above shares of the company.

As a result, the multinational paint manufacturer has no barrier to issuing rights shares only for the general shareholders to increase public shareholding by 5% to maintain minimum 10% regulatory requirements.

In its meeting on 21 December, BSEC took the decision to exempt the Berger Paints.

According to BSEC documents, the sponsors, directors and investors holding 5% or above shares of the company will be waived from subscribing for rights shares and the renunciated shares will be made open for the general shareholders.

According to the rights issue rules, the rights shares of sponsors, directors of a company are usually locked for three years.

As the general shareholders will be entitled to subscribe for the renunciation shares, the BSEC exempted the company from complying with the rules.

"Considering the situation, we exempted the company from issuing right shares, and the shares will be issued to the general shareholders," BSEC Chairman Prof Shibli Rubayet Ul Islam told The Business Standard.

Now, the company will apply to the commission for approval of issuing rights shares, according to BSEC officials.

The exemption has been given as the plan to increase the free-float shares in the market would not have succeeded, had the right shares been issued for all the shareholders, a BSEC official added.

"With the issuance of fresh shares through the rights issue to the general shareholders, free-float shares in the market will increase, and the company will be able to comply with the regulator's requirement," the official stated

He also explained that the renunciated shares of sponsor-directors can now be allocated among general shareholders.

Contacted over phone to make a comment with regard to the matter, Rupali Chowhury, managing director of Berger Paints Bangladesh said: "We cannot talk now over this issue."

Earlier in August last year, Berger Paints had applied to the commission seeking regulatory exemption to issue right shares among general shareholders, excluding sponsor-directors.

In a letter, the paint maker said it had previously tried to comply with the 2021 regulatory order by selling 5% of its current shares held by its sponsor-directors through block transactions on the Dhaka and Chattogram stock exchanges.

However, the effort was not successful because of insufficient demand at the given market price amid the global economic uncertainty and poor market liquidity, Berger wrote.

Then, Berger had explored alternative ways to ensure that at least 10% of its shares are available for general investors.

Usually, companies opt for a repeat public offering (RPO), a method for listed firms to raise capital by issuing fresh shares, but it appeared to be inconvenient for Berger.

The public issue rules have no provision for prioritising selling new shares to existing shareholders, which would not guarantee the minimum free-float intended.

Besides, the price determination of fresh shares through RPO bidding will not ensure a specific percentage of dilution needed to comply with the regulatory order for 10% free-float shares.

Issuing fresh shares only to the general people is the way the company proposed to the BSEC.

Rights issue rules ask for a proportionate allocation of new shares among all existing shareholders.

Now, the BSEC exempted Berger from this obligation that the fresh shares will be issued to existing general shareholders so that only their stake in the company goes up.

In September 2021, the BSEC ordered Walton Hi-Tech Industries, Investment Corporation of Bangladesh (ICB), and Berger Paints Bangladesh to ensure 10% free-float shares.

When the companies went public, it was not mandatory to maintain at least a one-tenth stake for public investors.

Berger, which holds over half of the paint market share in the country and became a publicly traded company in 2006, consistently reports substantial profits each year and also provides generous dividends to its shareholders.

From April 2022 to March 2023, its annual revenue was Tk2,555 crore and its profit was Tk292 crore. It had paid a 400% cash dividend to its shareholders.

In the first half during April to September 2023, its net revenue declined by 1.48% to Tk1,200 crore, but its net income rose by 5.27% to Tk140.50 crore.

Berger shares, which have a face value of Tk10, closed at Tk1,770.70 on Monday, 0.23% down from the previous session on the Dhaka Stock Exchange.