How govt is losing dividend from six listed firms

To finance development works and business expansion, state-owned gas distributor Titas took Tk298 crore from the government over the years till FY22. In exchange, the government was supposed to get Titas shares and enjoy dividends every year. But that did not happen, as there are no guidelines about how many shares Titas would issue against the amount and what would be the value of each share.

The vacuum deprives the government of annual dividends, compels the gas distributor to sit on a dirty balance sheet and leaves its stakeholders in share uncertainty. 

But the issue is not supposed to prolong in the first place, as the accounting regulator Financial Reporting Council in 2020 asked Titas and five listed government firms to issue the shares within six months and convert the government investments into new shares and transfer them to paid-up capital of the companies.                 

Even after three years of that directive, the firms could not comply. Despite several meetings with the stakeholders, they could not finalise the method or price of the new share issue.       

Apart from Titas, the other five companies are – Power Grid Company of Bangladesh, Meghna Petroleum, Rupali Bank, Dhaka Electric Supply Company Limited (Desco) and Bangladesh Submarine Cable Company.   

The government is asking for new shares at a face value of Tk10 – which is several times lower than the market prices – against the investments to the companies, according to sources who were in the meetings over the share valuation, joined by representatives from the finance ministry, the Bangladesh Securities And Exchange Commission, Financial Reporting Council Bangladesh, and the firms.   

The sources said the companies and stakeholders have objected to the issuance of new shares at Tk10 face value.

"Some 25% of Titas shares are currently owned by general investors. They will take a hit if the new shares are issued at less than market prices," a Titas official told The Business Standard. 

"Besides, if Titas floats new shares, its earnings per share (EPS) will decrease since the government investments have already been spent," he commented, adding a committee has been formed with representatives from all parties to set the prices. The issuance will be finalised once the committee settles the rates and the government gives the go-ahead. 

Md Hamid Ullah Bhuiyan, chairman of the Financial Reporting Council Bangladesh, hopes that the issue will be settled soon through negotiations.

What's next? 

The government has at various times provided capital to state-owned companies for development and business expansion. Of the capital injection, 60% will be treated as equity shares – funds paid into a business by investors in exchange for common or preferred stock, and 40% as loan support.

According to the Financial Reporting Council Bangladesh, the six companies that have taken the capital support owe the government share money deposits worth at least Tk9,500 crore – which is several times higher than their current Tk2,842 crore paid-up capital.

Of the companies, Titas holds the highest Tk989 crore paid-up capital followed by Tk717 crore of Power Grid Company of Bangladesh (PGCB).  

The PGCB, according to its financial statements, has taken Tk8,043 crore from the government for project funding and power network expansion. 

Now if the company converts the capital support into shares as per the directive of the Financial Reporting Council Bangladesh, the company's earnings per share and dividend will fall substantially.

An alternative to the issuance of the regular share could be a preference share, which will increase the number of PGCB general shares as the return against the new shares will be fixed.

For preference shares, the national power grid operator will have to put aside the dividends first before calculating the earnings per share.

The company, however, is yet to finalise the new share type thanks to objections by the government.      

Financial Reporting Council Chairman Md Hamid Ullah Bhuiyan said that issuing preference shares by the PGCB will be positive since the issuance of new ordinary shares will sharply affect the EPS. 

"Now it's up to the government to finalise the issue," he told The Business Standard.

Another government firm, the Bangladesh Submarine Cables Company took a total capital support of Tk190 crore in two phases for business expansion in FY16 and FY17. The firm has decided to issue new shares at Tk110.20 each against the capital of Tk140 crore taken in FY16 and Tk120.10 against Tk26 crore in FY17.

Similar to the PGCB, the company is yet to finalise it as it is waiting for the finance ministry's approval.