State firms call for guidelines on how to set the value for share money deposit

Listed firms have called upon the regulators to introduce guidelines on how to set the share value that the companies have to issue against share money deposit.

Share money deposit is the money paid in exchange for shares that have not been acquired yet.

The Financial Reporting Council (FRC) recently detected that in fiscal 2018-19 alone, the government missed out on at least Tk 1,155.5 crore in dividend against Tk 6,652.6 crore the companies showed in their "share money deposit" accounts as the government's investment.

Based on the findings, the watchdog for financial reporting and auditing practices has asked the companies to issue the shares within six months.

Until fiscal 2018-19, the government invested Tk 6,652.6 crore in Bangladesh Submarine Cable Company (BSCCL), Titas Gas, Power Grid Company, Meghna Petroleum, Rupali Bank and Dhaka Electric Supply Company and the amount was shown as share money deposits in the companies' financial reports.

The companies' share money deposits amounted to Tk 4,775.5 crore in fiscal 2017-18 and Tk 3,815.8 crore in fiscal 2016-17 respectively.

"The main problem is when the government had provided the money it did not specify anything as to when the share should be issued and what would be the share value," said a top official of the BSCCL preferring anonymity.

Last week, the company sought a guideline from the FRC on how to set the share value that would be issued to the government against the share money deposit.

The government did not mention anything about the share issue price: whether it would be issued at face value or market value or based on something else.

So, there should have been a guideline, the official said.

"Now, if we consider the money as capital as per the FRC order then our earnings per share would fall, which would impact the general investors. So, we need to take approval from them first," he added.

If the companies issue the shares at face value, then the number of shares would increase heavily and it will reduce their earnings per share and thus affect dividends, said Md Moniruzzaman, managing director of IDLC Investments, a merchant bank.

The price might be set by considering the average share price of the last six months, which was seen in some cases before, he added.

"We do valuation based on a company's cash flow and earnings per share, which gives a clear picture of a company's financial strength," said Khairul Bashar Abu Taher Mohammed, chief executive officer of MTB Capital, another merchant bank.

It also should be taken into account how the earnings of a company are compared to its equity or assets, he said, adding that it gives an idea of how efficiently the assets are used.

But if the shares are issued at face value, it would be a big blow for the general investors, Mohammed said.

"We are carrying out analysis on what would be the valuation process for share issuance," said Sayeed Ahmed, executive director of the FRC.

It might be based on net asset value and the preceding year's share prices compared with the earnings per share.

"On the other hand, companies can issue preference shares. Then the number of shares would not rise and the earnings per share would not be affected," Ahmed added.

Those shares are distributed to preferred people by not issuing new ordinary shares and the holders of preference shares get the dividend at a fixed rate before any dividend is paid to other classes of shareholders.

IDLC's Moniruzzaman said if the companies issue preference shares at higher yield rates then the companies' payment obligation will rise, so again the general investors will suffer.

So, the yield rate might be fixed considering the dividend yield, he added.

The dividend yield is a ratio that shows how much a company pays out in dividends each year relative to its stock price.

There are 19 government-owned companies listed with the bourses and most of them have share money deposits, according to the Dhaka Stock Exchange data. Among them, BSCCL sought 14 months to complete the share issuance.

The company has been facing an audit claim of Tk 8.6 crore from Foreign Aided Projects Audit Directorate, which needs to be settled first to get the actual amount of share money deposit.

"The matter may take four months to be settled," the BSCCL official said.

On the other hand, it will need to take approval from stock investors and the government about the share issuance and setting share value.

Apart from these, an audited financial report, assets valuation, information memorandum to take approval from the stock market regulator and some other regulatory activities should be completed to issue the shares.

All the formalities will take 14 months, according to the official of the BSCCL, which has already appointed ICB Capital Management as its issue manager.

The FRC ordered the listed companies to count the share money deposit as potential share capital and count the earnings per share of the company based on the new capital until its share issuance.

Before taking approval from the stock investors, if the earnings per share are counted considering the share money deposit as potential share capital then the stock market will be impacted, the BSCCL said.

"We want to issue shares to the government but there was no directive as to what would be the issue price," said a high official of another listed state-run company, asking not to be named.

The shares were not issued mainly due to a lack of efforts from the government's side, he added.