Titas to issue Tk258cr preference shares to govt at flexible conditions

Infographic: TBS

Titas Gas Transmission Company Limited has been instructed to issue preference shares to the government against its total Tk257.98 crore share money deposit with the state-owned gas distributor for the Dhaka and Mymensingh region. 

At a meeting on 16 April, a committee formed with officials from the finance ministry, Titas, and the Financial Reporting Council (FRC) made the decision to issue irredeemable non-cumulative preference shares in favour of the government and the prescribed way seems to be flexible enough to offer the struggling company a breathing space. 

The proposed conditions imply, if Titas makes more profits the government will get high dividends against the preference shares and in cases of annual losses no dividends will be given. 

The preference shares that do not increase a company's paid-up capital or common share capital will remain there perpetually as they are irredeemable, and Titas will not have to pay the government any previous year's unpaid preference share dividends due to the "non-cumulative" nature. 

Unlike common shares, preference shareholders are not the owner of the company; they instead enjoy a priority over common shareholders in getting dividends and redemption rights in cases of bankruptcy. 

The committee has formulated guidelines on issuing preference shares and their dividends.

The formula adopted suggests if Titas issues preference shares against its entire Tk257.98 crore in share money deposit from the government, the government would be entitled to get Tk16.45 crore in preferred dividends for the fiscal 2021-22, a 6.37% yield for the particular year. 

At the current capital structure, if the entire share money deposit is converted into preference shares Titas Gas will have to pay 20.685% of one-fourth of its net profit after taxes. 

Titas gas has been in a gradually narrowing gross profit margin as the energy regulator kept reducing its distribution charges. 

The publicly traded state-owned company, once treated as a stable source of cash dividends, has incurred Tk117 crore losses in the January-March quarter this year for the first time after stock market listing in 2008. 

At present, the government holds 75% of the ordinary shares of Titas Gas, and the remaining shares are held by institutional and general investors. 

Md Nur Hossain Khan, deputy general manager and in-charge of the share department at Titas, told The Business Standard, "After several meetings with the ministry, it has been decided to issue preference shares against share money deposits. We have also received a letter from the ministry to this end."

Titas' paid-up capital is Tk989.1 crore, and the number of shares is 98.92 crore while the face value of the shares is Tk10 apiece. 

On 2 March 2020, the FRC directed that the capital received as a share money deposit, or whatever the name is, that is included in the equity part of any company that cannot be refunded and the said amount be converted into share capital within six months from the date of such receipt.

Further, such share money deposits shall be considered in the calculation of earnings per share.

Titas has taken on capital support at various times but has not issued any shares for the government as there were no guidelines. 

Titas shares were stuck on the floor price of Tk40.9 on the Dhaka Stock Exchange on Wednesday.