Why Confidence Cement revises rights offer

Infographic: TBS

Confidence Cement has revised its rights offer – lowering the price by Tk10 per share, considering volatility and liquidity shortages in the capital market – to raise funds for investment in an associate company.

In a disclosure today (21 December), the Chattogram-based cement manufacturer, a concern of Confidence Group, announced plans to raise Tk100 crore by issuing one share for every three existing shares, each priced at Tk35, including a Tk25 premium.

Previously, the company in September had announced plans to raise Tk130 crore with rights offer at Tk45 each share, which included a Tk35 premium, for investing in Confidence Cement Dhaka Limited.

In a price-sensitive statement, Confidence Cement announced that its board of directors had revised the rights offer after evaluating the current capital market conditions and prioritising the best interests of investors.

On 3 December, the Dhaka Stock Exchange (DSE) downgraded the company from the A category to the Z category due to its failure to disburse the approved dividend, which is a breach of listing rules.

The company was brought back to the best category again two days later after it cleared the dividends.

Amid these adversities, the company's stock price fell, with each share dropping from Tk62 to Tk57.

A senior company official explained that the stock market is currently experiencing a liquidity crisis, with daily turnover remaining low at around Tk300 crore due to reduced investor participation.

As a result, the board decided to lower the premium rate to make the offer more accessible, he added.

Confidence Group has invested around Tk815 crore in building a new cement factory near the capital, aiming to expand its business and capture the Dhaka-centric cement market.

The new factory is being constructed in Narsingdi. With an annual production capacity of 18 lakh tonnes, the plant is expected to begin operations in the first quarter of next year, officials said.

Imran Karim, vice chairman of Confidence Cement, told The Business Standard earlier that their initial plan was to invest Tk600 crore in the new factory, based on an estimated dollar exchange rate of Tk100-Tk105.

"However, with the rate surging to Tk120, we have spent an additional Tk250 crore. The increased cost has been managed through bank loans and our internal resources," he said.

"To repay the high-cost bank loans, we have decided to go for rights offer to our shareholders, encouraging their participation in this effort," Karim added.

Confidence Cement will now seek shareholder approval for the rights offer at its annual general meeting, after which it will approach the Bangladesh Securities and Exchange Commission for final consent.

The company has scheduled an extraordinary general meeting for 5 February to seek shareholders' approval. The record date has been set for 12 January to determine shareholder eligibility for participation in the meeting.

Earlier in 2023, Confidence Cement had planned to raise Tk150 crore by issuing preference shares but later abandoned the plan as it was deemed unsuitable, according to a company official.

Ready-mix business to be disposed

After halting production in February this year, Confidence Cement has now decided to dispose of its ready-mix concrete plant business due to disruptions in raw material imports caused by the foreign currency crisis, stagnation in domestic infrastructure development, and the imposition of new taxes.

Citing these factors, the cement manufacturer disclosed that these issues led to significant price hikes and a substantial decline in demand. The company said the capacity of its ready-mix concrete plant is 24 lakh CFT, and the plant is situated in South Patenga, Chattogram.

According to its annual reports, the cement plant contributed the majority of Confidence Cement's total revenue, while the ready-mix plant contributed only a small portion.

Profit jumps 83% in July-September

Confidence Cement reported that its net profit grew by 83% to Tk34 crore, despite its revenue dropping by 8% during the July-September quarter of this fiscal year. Its revenue was Tk84 crore, down from Tk92 crore in the same period a year ago.

Earlier, the company paid a 10% cash dividend to its shareholders for the fiscal 2023-24.

In FY24, the company's consolidated profit jumped by 178% compared to the previous year, reaching Tk75 crore. At the end of the last fiscal year, its consolidated earnings per share were Tk8.73, up from Tk3.15 a year ago.

On Thursday, its share closed at Tk58.90 on the Dhaka bourse.