GPH Ispat has proposed raising Tk 9.68 billion through a rights share issue, with the entire proceeds earmarked for loan repayment, as the steelmaker intends to ease its heavy loan burden accumulated to finance capacity expansion.
The company's board has approved the issuance of nearly 968 million rights shares at Tk 10 each, offering two new shares for every one existing share, subject to approval from shareholders and regulatory authorities.
The proposed issue is more than twice the volume of the company's existing shares -- 483.88 million. If approved and fully subscribed, the number of outstanding shares would rise to around 1.45 billion, leading to significant earnings dilution for existing shareholders.
Meanwhile, the company has shown weak income recovery.
GPH Ispat reported a profit of only Tk 33.87 million in FY26, against a loss of Tk 246 million in FY25.
The value of the proposed rights issue is therefore around 286 times the FY26 profit, underscoring the huge gap between earnings capacity and the amount of fresh equity the company is seeking.
The company's borrowing position is substantial. Its long-term loans stood at more than Tk 34 billion, while short-term borrowings were around Tk 31 billion as of March this year.
Unlike a conventional capital-raising exercise to finance new investment, GPH Ispat plans to use the entire rights proceeds to repay loans, primarily aiming to repair the balance sheet and reduce the finance cost burden.
Market operators said debt repayment could lower finance costs and ease pressure on the company's balance sheet. But the key issue for investors will be whether the loan repayment is sufficient to produce a sustained improvement in profitability and cash flows.
Company secretary Md. Mosharof Hossain could not be reached for comment.
Akramul Alam, head of research at Royal Capital, said the rights issue could give the steelmaker much-needed relief by slashing its partial debt and finance costs, but a sustained recovery would depend on whether the company can improve capacity utilisation, operating profitability and cash generation.
"If sales remain weak, production capacity remains underutilised and operating costs remain high, lower interest costs alone may not be enough to generate strong profits," he said.
Moreover, existing shareholders who will not subscribe to the rights issue will face significant dilution.
Fresh attempt following BSEC rejections
The latest proposal comes after GPH Ispat's earlier attempts to raise funds through rights shares and preference shares failed to secure consent from the Bangladesh Securities and Exchange Commission (BSEC).
In May 2025, the regulator informed the company that it was not in a position to accord consent to the proposal to raise Tk 2.42 billion through a rights share issue, citing a lack of proper documents.
A month later, the BSEC rejected GPH Ispat's proposal to raise Tk 5 billion through non-convertible, cumulative, redeemable and non-participative preference shares.
Those proposals were separate from the latest Tk 9.68 billion rights issue, which will undergo a fresh approval process.
The much larger size of the latest proposal suggests that the company is seeking a more substantial recapitalisation to address its debt burden.
Large expansion, limited utilisation
The rights issue also raises questions about the company's ability to generate sufficient returns from its business expansion that began in 2016.
GPH Ispat started commercial production at its Tk 23.90 billion plant, which was constructed as part of the expansion project, in June 2021.
The facility has an annual capacity to produce 840,000 tonnes of mild steel (MS) billet and 640,000 tonnes of MS rods and medium-section products, including support beams and flat bars.
However, the company said it had delayed commercial production due to the COVID-19 pandemic. Later, it was unable to fully utilise the additional capacity owing to the suspension of government projects and a slowdown in construction and infrastructure activities in the private and semi-government sectors.
The resulting underutilisation has made it more difficult for the company to generate adequate returns from its large investment while finance expenses escalated due to interest rate hikes.
For example, its finance cost jumped 20.12 per cent year-on-year in FY25.
The company, however, expects a gradual recovery, supported by political stability, improved investment sentiment, and government-led development initiatives in the coming months.
Cash dividend despite weak earnings
Meanwhile, the board has recommended a 2 per cent cash dividend for general shareholders for FY26. The proposed dividend amounts to Tk 67.5 million, according to the company.
The record date for dividends has been set for October 1, while the AGM is scheduled for October 25 to be held under a hybrid arrangement.
Meanwhile, GPH Ispat shares fell 3.10 per cent to Tk 15.70 on Sunday on the Dhaka Stock Exchange following the disclosure of the proposed rights issue.
