Confidence Cement divests Dhaka plant's stake for Tk141cr to meet cash needs

Infographics: TBS

Confidence Cement PLC, a publicly traded cement manufacturer, has decided to divest its entire holding in Confidence Cement Dhaka Limited, an associate company in which it holds a 50% stake, for Tk140.97 crore to meet urgent financial needs.

As per the listed firm's board decision taken on Monday (4 August), the entire holding will be sold or transferred to Confidence Power Holdings, another associate company of the cement manufacturer under the Confidence Group.

The Confidence Power Holdings, one of the major profitable companies of the Confidence Group, hosts four power plants in Bogura, Rangpur and Chittagong regions with a total generation capacity of 393.6MW.

"The fund, gained from divesting its entire stake from the associate company, will now be used for repayment of its existing loans of the listed company," says Imran Karim, vice-chairman of Confidence Cement PLC.

Mentioning the divestment as a strategic move, Imran Karim, told TBS, "We have decided to withdraw our listed company's investment from the Dhaka factory in the best interest of our minority shareholders. While the ownership of the factory will remain within the Confidence Group, it is being separated from the listed entity.

"Confidence Cement Dhaka was set up to cater to the market in Dhaka and the surrounding region, whereas the listed company's operations will remain focused in Chattogram, " he added.

"We had invested around Tk140 crore in the Dhaka factory. That capital is now being pulled back to repay the listed company's high-cost debts and to support its future development."

In the current economic climate, overall business performance has been under pressure. If the Dhaka factory remained under the listed company, the returns might not be sufficient to provide meaningful dividends to our small shareholders. For this reason, the ownership has been transferred to another company within the group, Imran Karim said.

"We had earlier applied to the BSEC to raise funds through a rights issue for the Dhaka factory investment. Although the regulator initially declined the proposal, we have submitted a request for reconsideration. If the BSEC eventually approves the rights issue, we will revisit our investment decision regarding the Dhaka facility," he added.

Right share proposal rejection

In September last year, the cement manufacturer unveiled its plan to raise funds through issuing right shares. It planned to raise Tk100 crore with the plan to invest 50% of the proceeds in its Dhaka plant and use the remaining 50% to repay loans.

On 29 June, the stock market regulator rejected its fund-raising plan. The decision to divest investment from the Dhaka plant came just one month after facing BSEC rejection. Although it has appealed to the commission for reconsideration of its proposals.

Dhaka unit

The Chattogram-based Confidence Cement holds a significant share of the cement market. It planned to expand its presence and grab the Dhaka-centric cement market by establishing a new cement plant in Narshingdi.

The new unit – Confidence Cement Dhaka Limited – is being constructed at Danga in Palash upazila of Narsingdi with an annual production capacity of 18 lakh tonnes.

Total cost of the plant is estimated at Tk815 crore, which would be financed with a debt-equity (max) ratio of 70:30.

According to its annual report for 2023-24, the implementation of the project is underway, and it is expected to go into commercial operation by Mid-2025.

Prime Bank acted as the lead arranger & agent of the transaction and successfully closed it by raising Tk558 crore through a syndicated blended credit facility.

Bangladesh Infrastructure Finance Fund Limited extended their support from the JICA-funded scheme for only the energy-efficient machinery part of the project for a tenure of 10 years, whereas 10 local commercial banks & two NBFIs financed the rest of the amount for a tenure of 7.5 years.

Investment of Confidence Cement

Confidence Cement Dhaka Ltd was incorporated in 2018. Publicly listed Confidence Cement PLC owns 50% equity of the Dhaka unit, and the initial investment was Tk5 crore or 50 lakh shares at Tk10 each.

Later, Confidence Cement provided Tk132 crore fund to the company as share money deposit, as per its nine-month financial report for the 2024-25 fiscal year ended in March this year.

Now, the publicly listed company has decided to pull out its investment from the company.

 Revenue moderate, profit jumps on associate firm's dividend

According to its first nine-month (July-March) financials for FY25, the consolidated revenue of Confidence Cement stood at Tk317.64 crore, slightly up from Tk316.05 crore in the same time of the previous fiscal year.

Its gross profit saw a slight decline, but its year-on-year net profit surged by 20% to Tk83.36 crore with an earnings per share (EPS) of Tk9.67.

But after paying bank interest and charges of Tk42.31 crore, foreign currency exchange loss and finance income, it incurs a loss of Tk6.22 crore.

But with Tk94.10 crore earnings from its associate company, Confidence Power Holdings, it posts a profit (before tax) of Tk88.17 crore.

According to the statement, Confidence Power Holdings made a profit of Tk292 crore in the first nine months. Confidence Cement owns a 36% stake in the company, which is why it got Tk94.40 crore from the associate.

At the end of March, Confidence Cement had Tk566.78 crore in short-term borrowing and Tk16.94 crore in long-term borrowing.  

In FY24, Confidence Cement made a profit of Tk75.33 crore with an earnings per share (EPS) of Tk8.73, and it had paid a 10% cash dividend to its shareholders. 

In a letter recently to the securities regulator requesting reconsideration of its right offer, the company said that that although its standalone net operating profit has been under pressure due to macroeconomic and sector-specific shocks – such as foreign exchange volatility and rising raw material costs – the proposed rights issue is part of a strategic financial plan aimed at strengthening the company's fundamentals.

According to the letter, 50% of the proceeds from the rights issue would be used to repay existing loans, which is expected to reduce the company's annual interest expenses by more than Tk7 crore and improve future cash flows. 

The remaining funds would be invested in Confidence Cement Dhaka Ltd, currently an associate company, to convert it into a majority-owned subsidiary.

"This strategy ensures a turnaround in core profitability and dividend-paying ability post-implementation," the letter read.

Highlighting its dividend track record, Confidence Cement stated, "Despite macroeconomic challenges, we have maintained consistent dividend payouts over the past 10 years, with an average of 23.75% – a track record unmatched by many peers. We have always prioritised general shareholders' interests and ensured transparency and prudence."