Govt moves to convert Shipping Corp’s debt into equity

The government has initiated a move to convert the Bangladesh Shipping Corporation's (BSC) Tk1,500 crore liabilities into equity.

The publicly listed state-owned corporation that owns and operates the flag-carrying ocean-going vessels incurred the liability during its procurement of six new vessels from China under a government to government (G2G) arrangement a few years ago.

The Ministry of Finance has already sought and obtained the securities regulator's opinion regarding the conversion of the debt into equity, according to the documents being exchanged among the ministry, the corporation and the Bangladesh Securities and Exchange Commission (BSEC).

"The corporation may issue new shares against the principal amount the government lent to the corporation," the BSEC opined recently in response to the finance ministry's letter.

"The Government may offload the new shares of the BSC through the trading platform of the stock exchanges," the securities regulator added.

BSEC rejected the primary idea to convert the payable interest against the loans into equity, according to the documents being exchanged among the corporation, government and the regulator.

Seeking anonymity, a finance ministry official told The Business Standard on Saturday, "It is in an early planning phase and there is no concrete update to share."

BSEC Commissioner Dr Shaikh Shamsuddin Ahmed told The Business Standard, "We are encouraging the government to use the capital market much more for financing the ongoing economic development."

The SOEs (state-owned enterprises) with good financial health should convert their liabilities with the government into equity and the government may cater the market with a supply of new shares through offloading some of those, he said.

"Shipping Corporation represents Bangladesh on the oceans and they need many more vessels to strengthen the country's maritime sector," the BSEC Commissioner said, adding that he already had a meeting with the officials concerned.

Asked about details regarding BSC's equity conversion, he echoed the same view as the ministry Official.

"Everything is in principle yet. Whatever happens will be for a greater good for the investors, the market and the issuer," he said.

BSEC Executive Director and Spokesperson Rezaul Karim said, "We are yet to receive an application from the issuer in this regard."

Professor Shamsuddin Ahmed said the securities market regulator also encouraged the BSC to plan for a big blue bond that would help meet its financial needs to expand its fleet.

The government-funded six new ships

The BSC in 2014 signed a contract to procure three new product oil tankers and three new bulk carriers through the China National Machinery Imp & Exp Corp (CMC) under a G2G arrangement.

Under the deal, the China Exim Bank provided a concessional loan of $184.5 million to the Bangladesh government.

The amount equivalent to over Tk1,500 crore is treated as loans to the BSC by the Bangladesh government and the corporation is obliged to pay off the debt in 20 years with a grace period of five years.

The BSC has received all the vessels having a capacity of 39,000 DWT each before the pandemic and they are in commercial operations now, according to the BSC annual report for 2020-21.

The long left behind corporation now has eight oceangoing vessels including the new six and with the government's support, it is planning to expand its fleet further by adding new crude oil tankers, mother product oil tankers, mother bulk carriers, lighterage vessels, feeder vessels and LNG carrier vessels.

The government has recently converted its interest-bearing loans to some of the state-owned enterprises into equity or other forms of securities such as preference shares.

Following the equity conversion, the Power Grid Company of Bangladesh is set to convert a large part of its government liabilities to irredeemable preference shares.

Bangladesh Submarine Cable Company Ltd, the state-owned internet bandwidth gateway firm, is set to convert a portion of its government loans into its common shares at a rate of six-month market price average of its stock.

Earnings jump and stock prices soar

The corporation has seen a big jump in its earnings in the 2020-21 fiscal year that continued in the first two quarters of the 2021-22 fiscal year as well.

Despite an annual drop in operational revenue, the decline in various costs including that related to operations, administration and deferred tax provisioning, the corporation posted 74% growth in the net profits for the 2020-21 fiscal.

After annual earnings per share (EPS) of Tk4.72, the corporation has posted an EPS of Tk8.28 for the July-December period of 2021-22 fiscal year, up from Tk1.66 in the corresponding period of the previous year.

In the second quarterly statement, the company attributed the profit jump to the global hike in shipping fare.

The pandemic disruption resulted in a four to five times hike in shipping fare in the last two years.

BSC shares in the Dhaka Stock Exchange closed at Tk141.1 on Thursday. Following the earnings jump the stock registered around 200% gain in December-January.