BRTC must make profit to enter the stock market

State-owned Bangladesh Road Transport Corporation (BRTC) drew the attention of stock market investors after the cabinet meeting on Monday approved the draft BRTC Act, 2019, aimed at modernising the corporation’s structure.

The amended act will allow the corporation to grow bigger in terms of its capital structure and the government will finally share minority ownership with general investors.

Market insiders however said the current financial position of the company is unlikely to draw serious investors to the company. BRTC has been posting annual losses equivalent to 20-40% of its turnover and have not posted a net profit in a decade.

Cabinet Secretary Mohammad Shafiul Alam briefed reporters of the decision on Monday, saying the corporation has been running on an ordinance issued in 1961. 

The amended act will allow the entity to capitalise its assets up to Tk1,000 crore from existing Tk6 crore only.

A new analysis has been done to set its paid-up capital higher from the existing Tk3 crore only.

Asked about the corporation’s plan, BRTC Secretary Nur-E-Alom, said the government - as the owner of the corporation - has preliminarily decided on stock market listing.

The cabinet meeting approved the new BRTC Act, which will now have to be passed in parliament. The corporation will be modernised first on all aspects, and after strong consolidation, initiatives for listing will commence.

Bangladesh Merchant Bankers Association (BMBA) Secretary Khairul Bashar Abu Taher Mohammed said the stock market needs the SOEs to be listed. But investors also want assurance that they are putting their money in an efficient business engine.  

BRTC, as a pro-people transportation service provider, has a tremendous story to sell. “But the current financials do not support it offering equities to the public. It must make profit and assure investors of sustainability, along with brighter business prospects,” he added.

Some top investment research teams that have taken a look at the BRTC financials, emphasised on a strong need for operational efficiency, along with a prudent capital structure.

Data from the Bangladesh Economic Review 2019 reveals the BTRC managed to increase its annual operating income from Tk99 crore in 2009-10, to Tk253 crore in 2017-18. Spending almost entire of that against operational activities, it had been managing to post an operating surplus of below Tk10 crore until 2015-16.

The bad news for investors is that the company has been posting operating losses since then.

Even worse, the corporation failed to post a net profit for at least a decade. It has been posting annual losses equivalent to 20-40% of its turnover each year. Its total liability surpassed its three years’ revenue.

A point of small hope is since 2016-17, when BRTC’s operating and net loss picked up – the losses are gradually going down. Investors need it to be zero at first, and then BRTC can take off from there. The amended act will allow it to operate in a wider horizon with a high degree of effectiveness and efficiency.

However, good governance is key to such transformation, said investment researchers.

State owned enterprises (SOEs) generally attract investors because of their protected market, wider asset base, continuous government support, and most importantly, quicker access to policy level information.

However, what investors hate about SOEs is the low efficiency in management, in terms of earning more from a given set of resources. Blatant corruption or allegations of corruption is also another issue that discourages serious investors.  

The stock market of Bangladesh showed its hunger for profitable SOEs during the bull market a decade ago, when the government successfully raised a large sum of money from the public through offloading shares of the energy sector companies, like Titas Gas Transmission and Distribution, Padma oil, Meghna Petroleum, Jamuna Oil, Power Grid Company, and Desco.  

Investors had also welcomed the Bangladesh Submarine Cable Company Ltd in 2012, the last SOE that headed to the capital market.

Since then, investors have been tracking ministry meetings with hopes of hearing an update about the dozens of SOEs, across various sectors, assumed to be in the process of being listed.