Renata set to pay off short-term loans with bond finance

Business Desk :
In a strategic move to mitigate the potential impact of rising interest rates, Renata Limited – a leading drugmaker in the country – is poised to issue bonds to entirely pay off its outstanding short-term bank loans.

Currently, the company acknowledges an indebtedness of around Tk700 crore to several banks in the form of short-term credits.
On Thursday, the Bangladesh Securities and Exchange Commission (BSEC) granted approval for Renata to issue a five-year bond worth Tk660.15 crore.

Each bond unit will have a face value of Tk1 lakh.

The issuance is designated for banks, non-bank financial institutions, insurance companies, institutional investors, and high-net-worth individuals through private placement.

Jubayer Alam, company secretary at Renata Limited, told The Business Standard, “Due to the potential risk of increasing interest rates on bank borrowings, the company’s management has opted to fully repay the loans through bond financing.

The alternative avenue for long-term financing will enable the company to minimise its finance expenses.”

He continued, “Currently, lending rates at banks are on the rise. Consequently, finance costs may escalate in the future.

By securing financing through bonds with fixed rates, we anticipate obtaining funds at a lower rate compared to the potential future interest rates.”

In its report for the fiscal 2022-23, the company said its debt positions were predominantly short-term, exposing it to liquidity and interest rate risks.

“Long-term bank financing mitigates liquidity risk; however, banks reserve the right to re-set rates periodically.

As a result, given our high level of credit-worthiness and balance sheet strength, to fully mitigate interest rate risk, we are now in the process of raising a total of Tk700 crore for balance sheet restructuring,” read the report.

Besides the issuance of the bond, Renata has decided to issue redeemable cumulative non-convertible and non-participative preference shares to raise Tk350 crore to refinance the existing loans.

In this line, the company secured approval from its shareholders in the annual general meeting (AGM).

Jubayer Alam said, “Basically, we have Tk700 crore in short-term loans in banks. We have secured a bond; now we need over Tk200 crore to repay the full loans.”

Preference shares are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued.

If the company goes bankrupt, preferred stockholders are entitled to be paid from company assets before common stockholders.

While the non-participating preferred shares, for which dividends are usually paid at a fixed rate and not determined by a company’s earnings.

The shareholders of this type of share do not participate in the distribution of profits to equity investors.

According to its annual reports, Renata logged the lowest profit in the fiscal 2022-23 since the fiscal 2014-15.

The company reported a profit of Tk233 crore in FY23, reflecting a decline of over 54% from the previous fiscal year, attributed to the recent hikes in raw materials and utility costs.

In its annual report addressing the decline in profits, the company noted an overall surge in raw material costs, escalating by 20%-25%.

Additionally, the electricity price saw three increases of 5% each during the year, leading to a compounded increase of 15.7%.