How Power Grid toppled GP as the largest listed firm

Infographics: TBS

The Power Grid Company of Bangladesh surpassed Grameenphone (GP) as the largest company by market value on the bourses of Dhaka and Chattogram this week, raising eyebrows among market analysts and experts.

Until 12 May, the top telecom operator Grameenphone, with nearly Tk32,000 crore in market value, accounted for the highest 8.4% of the total market capitalisation in the Dhaka Stock Exchange (DSE).

In contrast, the state-owned power transmission monopoly, Power Grid, was not among the top 20, as it did not have a market value even one-tenth of GP's.

On 13 May, both the DSE and the Chittagong Stock Exchange (CSE) indicated that Power Grid's market value had surged to over Tk37,500 crore, up from less than Tk3,000 crore in the previous session.

This increase was due to an around 11-fold rise in its paid-up capital, from Tk712 crore to Tk8,555 crore, as the company issued fresh shares to the government against its significant share money deposit.

This surge occurred because the bourses inadvertently included the newly issued preference shares when calculating the company's market capitalisation, which is the total market price of all the common shares, according to experts.

Common shareholders are the ultimate owners of the company who equally own the profit and losses, assets and liabilities. On the other hand, preference shares let investors enjoy a quasi-equity tool for getting dividends and being paid back before common shareholders in cases of a company winding up.

The issue in the Power Grid case was that not all the new shares were common or ordinary shares, which are what typically contribute to the market capitalisation of a listed company. 

Instead, due to an apparent core conceptual mistake, the bourses treated all the new preference shares as common equity and multiplied the market price of common shares by all types of shares, said capital market expert Al-Amin, associate professor, Accounting and Information Systems, Dhaka University.

Of the new issuance, only 20.1 crore shares were common equity eligible to be included in the calculation of market capitalisation. On the other hand, the 764.11 crore new preference shares are not eligible to be part of market capitalisation, as their value differs from that of the common shares.

"Power Grid's inflated market capitalisation after the new share issuance is misleading investors," said Chartered Financial Analyst Shahidul Islam, managing director of VIPB Asset Management.

Power Grid Company Secretary Md Jahangir Azad said, "The preference share capital, alongside the increased common capital, was reported to the bourses as part of our compliances to the international accounting standard. We do not calculate market capitalisation."

Including preference shares in calculation of market value of a company is not acceptable, according to Financial Reporting Council (FRC) Chairman Md Hamid Ullah Bhuiyan, who is a professor of Accounting and Information System at the University of Dhaka.

"No way to calculate market capitalisation based on any securities beyond bona fide common shares," he told TBS.

His office, the accounting regulator of the country, looking into the matter, would communicate with the Bangladesh Securities and Exchange Commission (BSEC).

M Shaifur Rahman Mazumdar, managing director of the CSE, told TBS that the bourse's IT systems multiply the number of shares of a company by its market price for the market value and there has been some confusion within the bourse as the nature of the preference shares was complex a bit.

However, the primary way might be corrected if instructed by regulators, he added.

"This core conceptual mistake was an absolutely unwanted lack of professionalism. Such events would hurt the capital market and its investors as well as the economy further, especially when the government initiated a move to attract investors in profitable state-owned companies," said Al-Amin, associate professor, Department of Accounting and Information Systems, Dhaka University.

Power Grid, in compliance with new FRC regulations, recently converted Tk8,043 crore out of its Tk11,313 crore share money deposit from the government at the end of March into common and preference shares.

Based on the closing market price of Tk44.7 apiece, Power Grid's actual market capitalisation should have been slightly above Tk4,081 crore today (15 May) if the faulty calculation is corrected, according to a brokerage firm's notes to its clients.

Power Grid Company Secretary said that the Power Grid preference shares, which are more than nine times the common shares in number, would not be considered during earnings per share calculation.

The preference shares are irredeemable and non-cumulative in nature which means they will remain the same as long as the company stays afloat and also failure to pay dividends in a year will not add to the next year's payout liabilities.

BSEC Executive Director and Spokesperson Rezaul Karim said examining the issue, the commission would decide its next step. 

Power Grid share price rose by around 10% this week in the DSE.

Mahfuz Ullah Babu is a Special Correspondent at The Business Standard, covering financial markets, business, private sector development, IT, automobile and the tech industry for the past decade. He can be reached at [email protected].

Ahsan Habib Tuhin is a Staff Correspondent at the Business Standard, who has worked on financial and private sector reporting for the past 10 years. He can be reached at [email protected]