Renata to offer preference shares to investors, fully convertible into equity

Renata has decided to revise the terms for issuing preference shares worth Tk 3.25 billion to reduce its finance cost burden by paying off short-term bank loans.

Previously, the features of the proposed preference shares were non-cumulative, non-participative, redeemable or fully convertible. So, the conversion of preference shares into ordinary shares was left to the discretion of the issuer.

In the revised features, the company's board of directors dropped the redeemable option, keeping all other features unchanged. That means, preference shares would be fully converted into common equity at the end of the tenure.

The share issuance plan was taken in November last year and approved by the shareholders at an extraordinary general meeting (EGM) on January 12 this year.

The board of directors at a meeting on Wednesday considered changing the plan, according to a stock exchange filing the next day. This revision is subject to approval from the Bangladesh Securities and Exchange Commission (BSEC), the company said.

Redeemable or fully convertible preference shares are a type of equity investment that combines features of both preference shares and debt or common equity.

Redeemable preference shares are bought back by the issuer at a predetermined price or date while fully convertible means the preference shares would be fully converted into common equity upon maturity.

Preference shares worth Tk 10 each, with tenure of six years, will only be issued to existing shareholders. Any unsubscribed portion will be allotted on a pro-rata basis on receiving demands through applications and through private offers.

After the conversion of preference shares Renata's ordinary shares will increase by approximately 5.5 per cent.

"As the shares will be gradually converted into equity, no significant impact is expected on the company's financials," said company secretary Md Jubayer Alam.

He explained the conversion will begin in the third year after the issuance of the shares. Before conversion, preference share subscribers will receive interest at a fixed rate of 15 per cent.

Shareholders will be allowed to convert 25 per cent of their holdings of preference shares each year to complete conversion in the sixth year. Common stocks would be calculated at Tk 475 each during conversion.

Meanwhile, the stock of Renata closed at Tk 488.8 per share on Thursday, gaining 0.47 per cent from the day before on the Dhaka Stock Exchange.

Preference share, also known as preferred stock, is an exclusive share option which enables shareholders to receive dividends announced by the company before the equity shareholders.

Preferred shares typically pay steady dividends, while common stock only pays dividends if they are approved by the board of directors based on financial performance of the firm.

In the recent quarters, the drug manufacturer's finance costs shot up, along with other costs, impacting its bottom-line growth.

Against the backdrop of high interest rates, Renata planned to issue preference shares, aiming to repay a portion of its short-term borrowings.

It is part of a debt restructuring initiative intended to mitigate liquidity crisis and interest rate risk through conversion of short-term debts to long-term borrowings. The proposed instrument is expected to strengthen Renata's balance sheet, optimise debt-equity ratio and ensure long-term financial sustainability.

"We're actively replacing high-cost short-term loans with low-cost long-term alternatives, including preference shares and financing from the International Finance Corporation (IFC)," said Syed S Kaiser Kabir, managing director and CEO of Renata in a recent interview with the FE.

In June last year, the company secured a $60 million loan from the US-based International Finance Corporation (IFC) to increase its working capital.

Financial Performance

Renata's third quarter profit dropped 20 per cent year-on-year to Tk 587.62 million despite a 16 per cent growth in revenue in January-March, compared to the same period a year ago.

Finance cost jumped to Tk 456 million in January-March from Tk 230 million in the same quarter last year due to increased interest payment.

The drug maker's profit over the nine months to March also dropped 35 per cent year-on-year to Tk 1.68 billion due to the same reasons.

However, it had secured a profit of Tk 3.62 billion in FY24, making a 55 per cent jump from the year before, supported by higher exports and cost optimisation measures.

Renata paid a 92 per cent cash dividend for FY24, up from 62.5 percent for FY23.

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