Desco Limited, the state-owned power distributor, has decided to issue 60.76 crore preference shares to the government at a price of Tk10 each in exchange for share money deposit. The issuance price is below the market value, considering the recent closing price of Desco shares at Tk36.6 on the Dhaka Stock Exchange. The company has disclosed that the share issuance is contingent on approval from the Bangladesh Securities and Exchange Commission (BSEC).
As per its financial statement until June 2023, Desco had received Tk607.69 crore from the government as a share money deposit for its annual development plan. The company intends to issue irredeemable non-cumulative preference shares to the Secretary of the power division under the Ministry of Power, Energy, and Mineral Resources.
Following a directive from the Financial Reporting Council (FRC) in March 2020, Desco has opted to convert the share money deposit into preference shares after more than three years. These preference shares, with dividends paid to shareholders before ordinary shareholders, are of an irredeemable nature, meaning they won’t increase Desco’s common share capital.
While the issuance will not impact earnings per share (EPS) directly, the government, as a preference shareholder, will have priority in receiving dividends, potentially affecting net profit. Despite reporting a historic loss of Tk541 crore in fiscal year 2022-23, Desco has recommended a 10% cash dividend for the year.
Desco’s company secretary, Mohammad Rashedul Huq Shamce, clarified that the decision to issue shares at Tk10 each, lower than the market price, aligns with the government’s funding for development projects. The flexibility provided by irredeemable non-cumulative preference shares allows the government to receive dividends in profitable years while forgoing dividends in loss-making years. The loss reported by Desco is attributed to factors such as currency depreciation and differences in electricity purchase and sale prices.
This move by Desco represents a strategic approach to financial challenges and the government’s involvement in its shareholding structure. The company awaits BSEC approval for the preference share issuance.
