Beximco Pharmaceuticals will borrow about $51.6 million from Frankfurt-based BHF-Bank Aktiengesellshaft to expand its production.
The local drug maker, a unit of business conglomerate Beximco Group, struck a loan deal with the German bank, according to a posting on the Dhaka Stock Exchange website yesterday.
Beximco Pharma has also received approval from the Board of Investment of Bangladesh to raise the fund, which will be utilised to partially finance a new plant and machinery purchase.
The loan will come at an interest rate of 2.25 percent a year in addition to Libor (London interbank offered rate), which is lower than the local interest rate. The loan will be guaranteed by Hamburg-based Euler Hermes, a German export credit agency.
“The loan, which is secured on the plant and machinery being purchased, will be drawn down in four tranches,” Beximco Pharma said. Repayment will be made over five years in 10 semi-annual installments.
The loan will have a significant impact on Beximco Pharma's balance sheet, BRAC-EPL Stock Brokerage said in an analysis.
As of September 30 last year, the company's total interest bearing debt was Tk 480 crore. Its debt-to-equity ratio -- a measure of financial leverage -- was 23.5 percent.
The foreign loans will nearly double the gearing of the company and lower the cost of debt significantly, BRAC-EPL said.
Over the past four years, the cost of debt averaged 16.1 percent while debt-to-equity averaged 22.7 percent. “The new loan, financed at a low single digit rate, will sharply reduce the financing cost of the company. Both a lower cost of debt and higher debt ratio will lower the weighted average cost of capital of Beximco Pharma,” it said.
Beximco Pharma has yielded a very low return on capital over the years, it added. “Return on invested capital has been only 7.5 percent on average in the past three years.
The low return is evident in the multiple in which the stock is trading in the market,” BRAC-EPL said.
Beximco Pharma's net profit rose to Tk 115 crore in the nine months through September last year from Tk 108 crore in the same period the previous year.
Each share of the drug maker listed in the stockmarket in 1986 traded between Tk 57 and Tk 58.6, before closing at Tk 57.3 on the Dhaka bourse yesterday.