Desco to issue 60.76cr preference shares for government
The issuance price is lower than the market value, as Desco shares last closed at Tk36.6 each on the DSE on Wednesday
State-owned power distributor Dhaka Electric Supply Company (Desco) Limited has decided to issue 60.76 crore preference shares at Tk10 each to the government against share money deposit.
The issuance price is lower than the market value, as Desco shares last closed at Tk36.6 each on the Dhaka Stock Exchange (DSE) on Wednesday. The share issuance is subject to approval from the Bangladesh Securities and Exchange Commission (BSEC), the company stated in a disclosure on the DSE.
According to its financial statement till June 2023, Desco received Tk607.69 crore from the government as a share money deposit for its annual development plan. Against this fund, the company will now issue irredeemable non-cumulative preference shares in favour of the secretary of the power division under the Ministry of Power, Energy, and Mineral Resources.
On 2 March 2020, the Financial Reporting Council (FRC) directed that capital received as a share money deposit, or by any other name, should be included in the equity part of a company. This amount cannot be refunded and must be converted into share capital within six months from the date of receipt. Such share money deposits shall also be considered in the calculation of earnings per share (EPS).
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After more than three years of the FRC directive, Desco has now decided to issue preference shares.
Preference shares are a type of company stock with dividends paid to shareholders before ordinary shareholders. In case of bankruptcy, preference shareholders have priority in receiving payment from company assets before common stockholders.
The irredeemable nature of these preference shares means they will not increase Desco's paid-up or common share capital. Consequently, the company is not obligated to pay any previous year's unpaid preference share dividends due to the "non-cumulative" nature of the shares.
As the new shares will not be taken into account for EPS calculation, there will be no direct impact on the company's financials.
But because of getting priority in dividend payments, the government as preference shareholder will first receive a portion of the company's earnings as dividend, which might ultimately decrease the net profit.
Mohammad Rashedul Huq Shamce, the company secretary of Desco, told TBS, "The decision to issue irredeemable non-cumulative preference shares provides flexibility. If Desco makes a profit, the government will receive dividends against the preference shares. In cases of annual losses, no dividends will be given."
Responding to queries about the issuance of new shares at a rate lower than the market price, Shamce explained, "The government provided the funds for development projects, hence consenting to the issuance of shares at Tk10 each."
According to its financial statement, Desco reported a loss of Tk541 crore in the fiscal 2022-23, marking the first annual loss in its history. The company attributes the lion's share of this loss to the depreciation of the taka against the dollar, as Desco holds Tk2,900 crore in foreign loans. Additionally, Tk113 crore in losses is attributed to the difference between the purchase and sale prices of electricity.
Despite substantial losses, Desco recommended a 10% cash dividend for FY23.
