Why investors should not expect benefits from review of Titas assets

The state-owned Titas Gas Transmission & Distribution Company's fixed assets climbed more than five times to Tk 48.63 billion after a revaluation of its property, plant and equipment, done for the first time in six decades.

A significant jump in the value of land and buildings mainly contributed to the increased value of assets, said Aparna Islam, general manager (finance) of the company.

Land comprises about 17 per cent of the company's fixed assets while transmission & distribution lines constitute two-thirds of the property. The land was valued at Tk 1.60 billion and buildings Tk 736 million or 7.68 per cent before the evaluation.

Although the fixed assets' value shot up, experts say, investors should not be expecting any benefit. They say that revaluation of assets is routine work for many companies and they do it to enhance the book value. Investors gain when assets are liquidated and cash is distributed in the form of dividends to shareholders.

In some cases, it helps the company to get bank loans easily, said Asif Khan, chairman of EDGE Asset Management.

"Otherwise, there is no benefit from revaluation of assets."

A revaluation of assets may matter though for some companies other than state-run entities, said Mr Khan, giving a reference to a listed multinational company that had sold some unnecessary assets and divided the sale proceeds among shareholders by paying dividends.

Though Titas has a good reserve of retained earnings, it does not distribute dividends as much as it is capable of. The company distributed 10 per cent cash dividends for FY22, which was reduced to 5 per cent for FY23.

Secondly, the company would not sell any unnecessary assets. Titas does not need bank loans either.

"So, any benefit for shareholders is very unlikely from the increased book value of the state-run Titas," Mr Khan said.

Company secretary Md Lutful Hyder Masum said, "We will have a new independent pay scale, so have reevaluated the company's assets."

Titas Gas, which enjoys a monopoly on pipeline gas distribution in Dhaka and Mymensingh, got its assets reevaluated by Acnabin Chartered Accountants & ZA Capital Advisory. The board of Titas Gas has already approved the revaluation report submitted by the auditors, according to a stock exchange filing on Monday.

Mahmudur Rahman, a director of Acnabin, said the lands of TITAS are mainly located in the prime locations of the capital and divisional headquarters. "The value of such lands multiplied in the last two decades."

FINANCIAL PERFORMANCE

The government hiked gas prices for power, industries, and commercial sectors up to 179 per cent, effective from February last year. That boosted its nine-month revenue by 55 per cent year-on-year to Tk 265 billion through March this year.

However, the company incurred a loss of Tk 1.65 billion during the time for what it claimed was lower gas distribution margin.

The distribution margin was cut to Tk 0.13 per cubic metre of gas from Tk 0.25 per cubic metre of gas in July 2022. The rate was revised up to Tk 0.21 per cubic metre of gas in July 2023.

The company's finance expenses jumped 73 per cent year-on-year to Tk 45 million in the nine months through March this year.

The publicly-traded company, which used to be a stable source of cash dividends, experienced the first time annual loss of Tk 1.65 billion in FY23, for the narrower distribution margin and higher finance costs.

That led to the lowest cash dividend of 5 per cent since the company's listing in 2008.

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

Its stock price advanced 0.5 per cent to Tk 20.80 per share on Monday, having plunged 49 per cent since the removal of floor price in January this year.

PREFERENCE SHARES

Titas Gas recently issued preference shares worth nearly Tk 2.83 billion against funds received from the government to comply with more than a three year-old regulatory order.

Preference shares, more commonly referred to as preferred stock, are shares, against which dividends are paid out to shareholders before common stock dividends. Non-cumulative means the preferred stock does not have entitlement to missed dividends.

The board preferred issuing preference shares to ordinary shares to ensure that existing shareholders were not affected. Only ordinary shares boost the paid-up capital.

The government injected funds into the company as a share money deposit for implementation of several projects from time to time since the inception of the company in 1964.

The outstanding amount of share money deposits was Tk 3.01 billion until the end of 2023.

Although preference shares did not expand the size of the paid-up capital, existing shareholders of the company will be losers for dividends paid against preference shares.

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