The stock market regulator has allowed Dhaka Electric Supply Company (DESCO) to issue 45.9 million more irredeemable non-cumulative preference shares to the government against share money deposits.
The state-owned power distributor will issue the shares at the face value of Tk 10 each, totalling Tk 459 million, according to a regulatory filing on Wednesday.
The move is part of the government's efforts to convert its accumulated share money deposits given to state-owned entities into formal capital, allowing the government to obtain a return on its investment through dividends.
Preference shares—commonly known as preferred stock—entitle holders to dividends before any payouts to ordinary shareholders. However, the non-cumulative nature of these shares means the government will not be able to claim unpaid dividends in case of any missed payments.
Although preference shares are not classified as equity shares, they will increase fixed payment liabilities for the company. Also, the government will get priority over common stockholders when profits are shared.
Thus, existing shareholders' return on investment would be reduced by the dividend payout to the government against preference shares.
The government has injected funds into DESCO at different times to finance projects aimed at expanding and improving electricity distribution since the company's inception in 1996.
DESCO had previously issued 607.69 million preference shares to the government against share money deposits in compliance with regulatory requirements.
In 2020, the Financial Reporting Council (FRC) issued a gazette directing state-owned entities to convert accumulated share money deposits into capital.
The move followed concerns that substantial amounts of government funds had remained parked as share money deposits without generating corresponding returns for the state as an equity investor.
The approval comes as DESCO's financial performance shows signs of recovery after suffering heavy losses in recent years, largely because of foreign exchange losses on its foreign debt liabilities.
The company's unaudited financial statements showed a profit of Tk 580 million in the nine months through March this year, as against a loss of Tk 787 million in the same period a year earlier.
DESCO attributed the improvement to higher distribution revenue and non-operating income, coupled with lower exchange losses.
Meanwhile, the company posted a record loss of Tk 5.41 billion in FY23, mainly due to a substantial foreign exchange loss that increased the cost of servicing and repaying foreign loans. Despite the loss, DESCO paid a 10 per cent cash dividend for FY23 from retained earnings.
The company incurred another Tk 5.05 billion loss in FY24, largely because of foreign exchange losses. It did not declare any dividend for FY24 as retained earnings turned negative.
In FY25, the annual loss narrowed sharply to Tk 1.25 billion, supported by higher distribution revenue and non-operating income.
The latest nine-month results indicate that DESCO is gradually recovering from the severe financial pressure, although profitability remains vulnerable to movements in foreign currency and other operating costs.
Following the disclosure, the stock of DESCO shed 0.43 per cent to Tk 23 on Wednesday on the Dhaka Stock Exchange.
