State-owned Titas Gas is going to issue preference shares worth nearly Tk 3.52 billion against funds received from the government to comply with a four-year-old regulatory order.
In this regard, Titas Gas will hold a board meeting on March 6 for fixing the date of extraordinary general meeting (EGM) to receive the shareholders’ approval, according to a regulatory filing on Thursday.
Titas Gas, which enjoys a monopoly on pipeline gas distribution in Dhaka and Mymensingh, will issue nearly 352 million irredeemable non-cumulative preference shares at the face value of Tk 10 each in favour of the government.
Preference shares, more commonly referred to as preferred stock, are shares, against which dividends are paid out to shareholders before common stock dividends.
The board decided to issue preference shares, not ordinary shares, to ensure that existing shareholders of the company are not affected, said a company official, requesting not to be named.
Only ordinary shares boost the paid-up capital. The preference shares or preferred stocks would require the company to pay dividends against those before giving common stock dividends.
The government injected funds into Titas Gas Transmission & Distribution Company for implementation of various projects from time to time since its inception in 1964.
The outstanding amount of share money deposits stood at nearly Tk 3.52 billion as of December 2024, according to the company.
Market insiders say although preference shares will not expand the size of the paid-up capital, existing shareholders of the company might be losers for dividends to be paid against preference shares.
The preference shares will not enhance the equity size, but the huge number of shares may increase fixed payment liabilities of Titas, said Md Sajedul Islam, managing director of Shyamol Equity Management.
Subsequently, existing shareholders’ return on investment would be slashed by the dividend payout to the government against preference shares, he added.
The company has not paid any dividend to the government yet, but after the issuance of preference shares Titas will have to start paying back.
However, Mr Islam said general shareholders had already reaped benefits from the investment of share money deposits.
Financial Performance in H1 FY25
The publicly-traded company, which once made hefty profits and provided high dividends to investors, reported a huge loss of Tk 7.11 billion for the first half of FY25, while revenue dropped only 2 per cent year-on-year to Tk 174.72 billion in the period.
The company attributed the losses to a sharp increase in system losses and the recognition of tax at source as minimum tax during the period under review.
System losses, which refer to the amount of natural gas lost during transmission and distribution, rose 10.63 per cent in July-December last year, significantly higher than the allowable limit of 2 per cent. As a result, it had to bear a huge amount of purchase liability without receiving any revenue, said the company in its earnings note.
The company also explained that previously gas transmission and distribution companies were exempted from minimum tax requirements under the Tax Law 2023, which allowed Titas to claim refunds for excess tax deducted at source.
However, this provision was abolished during the current fiscal year. As a result, Titas is required to treat all tax deducted at source as a minimum tax liability if its actual tax obligation is lower.
Consequently, the company had to recognise the entire deducted amount as current tax expense, which significantly contributed to the losses, the company said in its earnings note.
Titas endured a first-time annual loss of Tk 1.65 billion in FY23, and then the loss escalated to Tk 7.44 billion in FY24.
Titas Gas listed on the stock exchanges in 2008 under the direct listing rules. At present, the government holds 75 per cent of the ordinary shares of Titas Gas, and the remaining shares are held by institutions and general investors.
The stock rose 1 per cent to Tk 19.7 per share on Thursday on the Dhaka bourse but plunged 52 per cent since the removal of floor price in January last year.
In March 2020, the Financial Reporting Council (FRC) issued an order that companies must issue shares against share money deposits within six months after receiving the money against the backdrop of such funds piling up. The directive was given because the government had been and still is deprived of dividends for its equity investments.
Last year, Dhaka Electric Supply Company (DESCO) and Power Grid Company also issued shares to the government against share money deposits to comply with the regulatory order. thefinancialexpress.com
