Energy & Power

Cover Report

Going Public

Mollah Amzad Hossain

Nurunnabi is a government service holder. He came with a request to Summit Power which is releasing its shares in market. He is an applicant for shares. There is no assurance in lottery that he will get IPOs (initial public offerings). So, his request is sort of a “tadbir.”

Those who are involved in the share market, specially those interested in investing primary shares, have a common and regular query: Why the energy sector companies are not coming to the capital market. It is a logical question. Across the world, the key source of funding of the companies in the investment-intensive energy sector is the capital market. But in Bangladesh, the sector is based on either grants or credit from donors or government exchequer.

Private investment in gas sector was allowed in early 90s while in power sector it was in late 90s. The private investment is mostly foreign investment. There are some domestic private investments in the power sector. But excepting one company, none offloaded shares in the capital market.

Chronology
Although the successive governments repeatedly said that the required amount of money for investing in the energy sector will be raised from the capital market. However no progress was made till date except the recent declaration that two companies under the Ministry of Power will go public by May 15 this year.

Capital market analyst Abu Ahmed who is a Professor of Economics at the University of Dhaka said: “It is a praiseworthy move of the government. But I suspect whether the companies will be able to float shares to public within the set deadline.”

There is some rationale of such apprehension. The government, earlier, directed the Power Grid Company of Bangladesh (PGCB) and the Dhaka Electric Supply Company Ltd. (DESCO) to complete all the procedures with the Securities and Exchange Commission (SEC) and start trading at the stock exchanges by March 15. However the power ministry failed to meet the deadline.

State Minister for Power Iqbal Hassan Mahmood however reiterated that the government will not shift from its decision to offload shares of these two companies by May 16. “We have finalized the decision at a joint meeting with the DSE, SEC and Investment Corporation of Bangladesh (ICB). The companies will start trading by the given date after listing directly with the stock exchanges,” he said.

Meanwhile the executives of the two state-owned companies are also optimistic about completing all the procedures prior to the deadline-preparation of financial statements and information documents for the prospective investors before listing with exchanges. The officials of the two companies are working now to accomplish these tasks.

Distrust to government’s announcement on the issue had not created overnight. Instances show that many of the promises under the Ministry of Energy have remained in papers. It would be noted that AKM Mosharraf Hossain, former State Minister for Energy, informed the media of the government’s plan to offload a portion of shares of the state owned petroleum companies under the Bangladesh Petroleum Corporation (BPC) -- Padma, Jamuna and Meghna to public.

Of these companies a portion of shares of the Padma Oil Company is being trading at the exchanges. The government on the basis of this arrangement, planned to offload the remaining shares of the company through the ICB. To make the move success the ministry requested the Privatization Commission (PC). However, no progress has been made till date.

Floating Shares: Primary Preparation Requirement

According to the existing rules, a company will be required to convert itself into a public limited company before going to public. The PGCB and the DSECO will be needed to now as these two are previously registered as the Public Limited Companies with the Registrar of Joint Stock Companies. The PGCB started its operation as a Public Limited Company under 100 percent ownership of the Power Development Board (PDB) while the DSECO came in operation under the full ownership of the DESA.

Both of the companies are profitable ventures of the government.

So the companies will start process of floating shares at second stage. The companies will now apply for listing with the exchanges along with submitting copies to the SEC. The DSE and CSE will clear the listing of the companies by 15 days.

Syed Abu Zafar Shamin, Manager (Listing) at the DSE told Energy & Power that they will be able to give a decision if they receive the necessary documents of the two companies at a time. “The two companies should not take much time for applying. However, I’m not sure whether the SEC waived the credit rating of the two companies. If the rating is required, it will take some tome,” he said.

The two companies will have to submit balance sheets of last five years. They will have to submit the plan of next five years. Sources concerned said that the SEC will finalize the decision on credit rating in next one week.

For listing, sources said that the PGCB and DESCO will apply to the DSE and CSE at a time. The copies will be sent to the SEC. Once they get the permission for the listing the SEC will be informed accordingly.

The two companies did not contact ICB, the issue manager, till filing this report in late March. Concerned officials, however, expect that floor trading will be possible by the stipulated time -- May 15.

PGCB

The PGCB is the lone power transmission company in the country. It under the reform program of the government started operation with 100 percent ownership of the BPDB and manpower engaged in transmission sector of the corporation. The commercial operation of the PGCB started in 1997. From the beginning it was a profitable company. It earned a profit of Tk 443 million before paying tax in last fiscal year. The BPDB Chairman is also the chairman of the PGCB for holding its shares.

The revenue of the PGCB comes from wheeling charge for transmitting electricity. At present its gets Tk 0.2268 for transmitting per kilowatt electricity through 132 KV line. The rate for 33 KV line is Tk 0.2291. The company has applied to the Bangladesh Energy Regulatory Commission (BERC) for re-fixing the rate at Tk 0.25.

Anisur Rahman, Director (Finance), PGCB informed that works are on for getting approval from the SEC. He is confident that the task will be completed on schedule.

Replying to a question, he said that the money to come from shares to be offloaded in the capital market will go to the BPDB as it is the owner of the company. So, he said, the money will not help PGCB’s investment immediately.

The PGCB is responsible for transmitting electricity across the country. Its paid-up capital is Tk 360 crore. According to the government plan, 25 percent shares worth Tk 90 crore will be released in the market.

Harun-or-Rashid, Acting Managing Director of the PGCB, told the Energy & Power called the decision of offloading shares a revolutionary decision. “It’s the first such step in the power sector, which will relief the government from pressure of investment. At the same time it will raise the skills of the companies,” he said.

DESCO

The DESCO was established in 1998 following continued failures and losses of Dhaka Electric Supply Authority (DESA). The company started operation through the most trouble-torn area of the capital, Mirpur. As the companies showed success, its distribution areas were expanded. The DESCO is now supplying electricity to Uttara, Gulshan and Baridhara alongside Mirpur. It’s a profitable company from the beginning.

At present the demand of 270,000 subscribers of the DESCO is 386 MW. The company has already shown success in customers services. It is able to resolves 70 percent problems within 30 minutes of receiving of the allegations. Some 20 percent problems are resolved within one hour while it takes some time for minimizing big technical problems.

The company was not profitable in the beginning. It had a profit of Tk 60 crore in last financial year. The money to be earned from offloading shares of DESCO will go to the DESA. It will help overcoming financial crisis of the DESA.

The DESCO is less problem-ridden compared to other organizations in the power sector as its manpower were recruited afresh. The paid-up capital of the company is Tk 127 crore. It will also offload 25 percent shares worth Tk 32 crore.

Engr. Saleh Ahmed, Managing Director of the DESCO, said that they have been taking all preparations to release the shares on time. “I think the decision to offload shares is a good initiative. It will play an important role in strengthening financial capacity and improving service of the DESCO,” he told Energy & Power.

What’s about Offloading Shares of 3 Cos. of BPC

Being assigned by the government, an audit company had updated the accounts of Padma, Meghna and Jamuna, three companies of Bangladesh Petroleum Corporation (BPC) for offloading their shares in the capital market. The Privatization Commission was requested to initiate the process to offload shares of Padma Oil Company in the market.

But the works have not proceeded much. Recently another audit firm has started works for updating the state of accounts of the three companies. The audit company had already completed the task for Meghna. It will take another six weeks for carrying out the works for Padma and Jamuna.

On completion of the audit works, the boards of the companies will decide whether the shares of the three companies will be offloaded in the market.

A senior official at the Energy Division, however, said that the pace of works indicates that there is no chance that the shares of the three oil companies will come into the market within the period of the 4-party coalition government.

Petrobangla Bonds

Petrobangla, the state-run oil, gas and mineral corporation, meanwhile, mobilized fund from the market by issuing bonds of its Sylhet Gas Field Company Limited. Some Tk 184.32 crore was mobilized through bonds for installing a MSTE plant at Kailashtila and workover pf wells 5 and 6 of Kailashtila field of the company. The tenure of the five-year bond will complete in fiscal 2007-08. The interest rate of the bond is 7.5 percent.

Former State Minister for Energy AKM Mosharraf Hossain had announced his plan to collect fund for Bangladesh Petroleum Exploration and Production Company Limited (BAPEX), another Petrobangla company, by issuing bonds. But no initiative has been seen so far.

Recommendation to Issue of Bond Worth Tk 10,000 Crore

Bangladesh Bank has recently recommended issuing bonds worth Tk 10,000 crore for three nationalized commercial banks (NCBs) against import of oil. The central bank recently sent a letter to the Finance Ministry in this regard, sources said.

The NCBs -- Sonali, Janata, Agrani banks -- have been facing crisis due to non-payment of arrears of oil imports. The BB has suggested to issue bonds to overcome the crisis. The Finance Ministry is considering the proposal, sources said.

The BPC has not been paying arrears to the NCBs for a long time due to its financial constraints. The NCBs’ amount receivable from the BPC stood at Tk 10,000 crore in last December, including Sonali Tk 5,300 crore, Janata 2,500 crore and Agrani Tk 2,200 crore.

To overcome the crisis, the BB suggested that three-year bond be issued. The NCBs will deposit the bonds with the central bank and fill up the deficit of SLR. At the same time they will be able to sale the bonds to the secondary market. The interest rate will be seven percent.

Capital Market & Energy Sector

It is common practice across the world that the energy sector companies mobilize their funds from the capital market. The companies in the developed world practicing it for a long time. It has also become popular in Asia, including South Asian countries.

The energy sector and capital market both in Bangladesh are new. At the same time the energy sector is controlled by the government. But people have much interest about the shares of the energy sector companies.

It was observed when Summit Power issued its shares in the market. The response was overwhelming when the private sector company issued shares of Tk 28 crore. The number of applications for per share was 10. Per share of Tk 100 was sold at Tk 140.

Summit Group Chairman Aziz Khan told BDNEWS, a private news agency, that the response was overwhelming.

Replying to a question, he said that the decision of offloading shares of the two companies is a positive one. “People will be interested to invest,” he said.

Syed Abu Zafar Shamim, Issue Manager of the DSE, said that with releasing shares of energy sector companies a long-cherished dream of people will be fulfilled. “Obviously it’s a positive decision. It will bring a new era in the capital market,” he said.

Meanwhile, UK-based Asia Energy Corporation, which is to develop Phulbari coalmine with US$ 2.0 billion investment, has announced to release IPOs in the market.

It will also fulfill the demand of people who have been demanding offloading shares of foreign companies in Bangladesh.

Looking Forward

A strong capital market is required for a strong economy. But, Bangladesh’s capital market is yet to get a strong shape. The investors should not be blamed for it. The main reason is absence of good companies in the stock market. If a good and reliable company issues IPOs, on an average 10-15 applications are submitted for per share. It proves that despite a big scandal in the domestic share market, people
did not withdraw their interest.

The small investors are a big resource for the economy of the country. They can play an important role in mobilizing funds for industrialization. The government must take the initiative for allowing them to the capital market under a strong and transparent policy.

Experts think that the government can strengthen the share market by offloading shares of good companies. The decision of offloading shares of the PGCB and DESCO is praiseworthy.

Some US$ 16 billion investment is required for implementing the government vision of electricity for all by 2020. Similar amount of investment is also necessary for development of the country’s gas sector. There is also coal sector with huge prospect.

If the government takes the right path, a big portion of the required investment can be mobilized by offloading shares of public sector energy companies. If the government companies come to the capital market, the local and foreign private investors will also follow it, the experts said. They also said that the future investors in the energy sector should be allowed with a condition that they will have to go to the capital market.