Renata's bond, preference shares: What's behind the subscription failure?

Infographics: TBS

The Bangladesh Securities and Exchange Commission (BSEC) has extended the subscription tenure for Renata – a leading pharmaceutical company – as its bond and preference shares failed to get fully subscribed on time.

Nearly a year has passed since the stock market regulator consented to the issuance of a Tk660 crore zero-coupon bond and Tk350 crore preference shares, but both capital-raising efforts for short-term loan repayment remain undersubscribed.

According to a press release issued on 25 March, the BSEC extended the subscription period for the zero-coupon bond by six months and for the issuance of preference shares by three months. The commission warned that this extension would be the last.

As of now, Renata has received Tk225 crore in subscriptions for its preference shares and Tk150 crore for its zero-coupon bond, according to officials.

When asked, Jubayer Alam, company secretary at Renata Limited, told The Business Standard, "We did not receive adequate subscriptions due to the significant increase in interest rates for Treasury bills and bonds. As a result, institutional investors, who typically invest for the long term, shifted their focus to government treasuries."

"Now that Treasury rates have declined, we hope the bond and preference share issuance will be fully subscribed within the regulator's mandated timeframe," he added.

Currently, the company acknowledges an indebtedness of around Tk700 crore to several banks in the form of short-term credits. To mitigate the potential impact of rising interest rates, Renata has decided to entirely pay off its outstanding short-term bank loans through the bond and issuing preference shares.

Tk350 crore preference share issuance

The stock market regulator in March last year allowed Renata to raise Tk350 crore by issuing 35 crore preference shares at Tk10 each through private placement for five years. The purpose of the funding was to repay a portion of its outstanding short-term loans to banks.

According to BSEC documents, shareholders investing in the preference shares will receive an annual dividend of 9-10%. The preference shares will not be added to the company's ordinary shares and will not be counted in its earnings per share (EPS).

Preference shares are shares in a company where dividends are distributed to shareholders before those holding ordinary shares receive theirs. 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.

According to the BSEC press release, the nature of preference shares is redeemable, cumulative, non-convertible, and non-participative. This means that, on maturity, the company will repurchase its shares from the investors due to its redeemable nature.

For its cumulative nature, the company is liable to pay shareholders any outstanding dividends in arrears if the company does not make enough profit in a year, and the shares will not be converted to ordinary shares. 

Due to its non-participating nature, preference shareholders are not entitled to any surplus profits beyond the promised dividends.

Tk660 crore zero-coupon bond

In January 2024, the securities regulator allowed Renata to issue a zero-coupon bond worth Tk660 crore with a view to repaying bank loans. The bond's face value totals this amount, with the drug maker receiving Tk500 crore from the bond issuance.

In October 2023, Renata decided to raise Tk850 crore through a bond and preference shares to pay off debt to banks and non-bank financial institutions. 

Of the fundraising, Tk350 crore was raised by issuing non-convertible and non-participative preference shares and a zero-coupon bond for Tk500 crore. Renata applied to the commission for approval, and despite receiving approval, it now struggles to get subscriptions.

October-December FY25 financials

Renata reported a 26% decline in consolidated profits for the October-December quarter of FY25. This downturn was attributed to rising interest costs and increased business expenses, according to the company's financial statement. 

During the second quarter, it reported a consolidated net profit of Tk64.72 crore, with EPS at Tk5.64. However, the company's consolidated revenue for the quarter rose by 16%, reaching Tk1,070 crore, compared to the same period in the previous year.

In the first half of FY25, Renata reported a 12% growth in consolidated revenue, reaching Tk2,087 crore. However, net profit declined by 35% to Tk124 crore compared to the same period in the previous year.

In its statement, the company attributed the decline in profitability to several challenges. It cited the political events of July 2024, culminating in the mass uprising and the ouster of the Awami League government on 5 August, which took a toll on Bangladesh's economy. 

This was further worsened by widespread flooding, escalating worker unrest across various manufacturing industries, and severe power outages nationwide, all of which significantly increased the cost of sales and operating expenses. 

Additionally, the company noted a sharp rise in finance costs, driven by both increased borrowing levels and higher interest rates, which further weighed on profitability and led to the substantial drop in EPS during the second quarter.