Renata sets preference shares conversion at Tk475 each

Infographic: TBS

Renata PLC, a leading pharmaceutical company, has unveiled its plan to issue preference shares to raise Tk325 crore, aiming to partially repay its outstanding loans and borrowings, with an option to convert the shares at Tk475 each after three years.

The offer for 100% of the preference shares is reserved only for the existing shareholders with a tenure of six years.

Any unsubscribed portion will be allotted on a pro-rata basis based on the application amount and through private offers, according to the plan. 

To get its shareholders' approval for the plan, the company called an extraordinary general meeting scheduled to be held on 12 January. 

The shares issuance plan has taken one month before in November this year, now it unveiled its full plan regarding share issuance and conversion price through a disclosure published on the stock exchanges yesterday. 

With the conversion of preference shares into equity, Renata's ordinary shares will increase by approximately 5.5% at the maturity of the issuance, according to its Company Secretary Jubayer Alam. 

"As the shares are gradually converted into equity, no significant impact is expected on the company's financials," he said.

Jubayer explained that the conversion will begin three years after the issuance of the shares. Before conversion, preference share subscribers will receive a dividend at a fixed rate of 15%. "Additionally, the conversion is being offered below the existing market price," he added.

Amid rising interest rates in the banking industry, the pharmaceutical firm decided to pay off its short-term borrowings from banks using debt securities and quasi-equity tools such as zero-coupon bonds and preference shares.

The significant hike in interest rates has caused the business to feel the strain of higher loan costs, which has adversely affected its financials.

Previously, it had raised Tk350 crore issuing 35 crore preference shares at Tk10 each to utilise the funds for repaying a portion of its outstanding short-term loans to banks through private placement for five years.

In January, the regulator also permitted the company to issue a zero-coupon bond worth Tk660 crore.

Preference shares, more commonly referred to as preferred stock, are shares of a company's stock with dividends that are paid out to shareholders before common stock dividends are issued.

Preference shareholders are not the owners of the company. However, they have priority over ordinary shareholders in terms of dividends and redemption rights in the event of bankruptcy.

The nature of preference shares is- non-cumulative, non-participative, redeemable or fully convertible.

Owing to its non-cumulative nature if a company chooses not to pay dividends in any given year, the shareholders of the non-cumulative preferred stock have no right or power to claim such forgone dividends at any time in the future.

Convertible preferred stock includes an option that allows shareholders to convert their preferred shares into a set number of common shares, generally any time after a pre-established date. 

The allotment 

As per the mode of placement, the preference shares are reserved for only exiting shareholders. The minimum subscription is Tk1,900 or any multiple with a lot size of 190. 

As per its plan, the first allotment will be on the basis of shareholding on the record date. 

That means, on the record date, those who hold shares of the company are entitled to participate in buying preference shares.  

But if the shares are not fully subscribed after the first allotment, on the second allotment, they will be allotted on a pro-rata basis upon application. 

At the final allotment, any unsubscribed portion shall be raised through a private offer. 

The subscriber will get a 15% dividend at a fixed rate annually for the first two months. 

At the end of the third year after issuance, the preference shares conversion will begin. In the last four years, all the subscriptions will be converted into equity.

For example, if an investor subscribes to shares of Tk1,900, he will get dividends for the first two years.

At maturity or in the sixth year, he or she will get four ordinary shares of the company at Tk475 each.

The loans 

Renata has around Tk1,800 crore loans — short- and long-term, according to its first quarter reports.

Out of the total loans, a significant amount is short-term. As interest rates are increasing, the company decided to pay off the short-term borrowings.

At the end of September, its short-term borrowing stood at Tk1,300 crore, while its long-term borrowing stood at Tk583 crore. 

During the first quarter of this fiscal year, Renata reported a consolidated revenue growth of over 7%, reaching Tk1,017 crore. 

However, consolidated net profit dropped by 42% to Tk59.50 crore compared to the same period last year.

The company recommended a 92% cash dividend for shareholders for the last fiscal year. The company will hold its annual general meeting on 5 December via a digital platform to approve the dividend and the audited financial statement.

Renata's share price closed at Tk653.70 on the Dhaka Stock Exchange yesterday.