The Bangladesh Securities and Exchange Commission (BSEC) has granted approval for the state-owned power distributor, Dhaka Electric Supply Company (Desco) Limited, to issue 60.76 crore preference shares at Tk10 each to the government against a share money deposit.
This decision was finalized in a BSEC meeting on Sunday.
According to Desco’s financial statement up to June 2023, the company received Tk607.69 crore from the government as a share money deposit for its annual development plan. Against this fund, Desco will now issue irredeemable non-cumulative preference shares to the secretary of the Power Division under the Ministry of Power, Energy, and Mineral Resources.
On March 2, 2020, the Financial Reporting Council (FRC) mandated that capital received as a share money deposit, or by any other designation, must be included in a company’s equity. This amount cannot be refunded and must be converted into share capital within six months from receipt.
Such share money deposits are also considered in the calculation of earnings per share (EPS).
Desco has decided to issue preference shares more than three years after the FRC directive.
Preference shares are a type of company stock where dividends are paid to shareholders before ordinary shareholders. In the event of bankruptcy, preference shareholders have priority in receiving payments from company assets over common stockholders.
The irredeemable nature of these preference shares means they will not increase Desco’s paid-up or common share capital. Consequently, the company is not obligated to pay any unpaid preference share dividends from previous years due to the “non-cumulative” nature of these shares.
The proposed conditions imply that if Desco achieves higher profits, the government will receive substantial dividends against the preference shares, whereas in the case of annual losses, no dividends will be distributed.
Since the new shares will not be included in EPS calculations, there will be no direct impact on the company’s financials. However, as preference shareholders, the government will receive dividends before ordinary shareholders, which might ultimately reduce the net profit available for common shareholders.
