Envoy Textiles Ltd has decided to issue a non-convertible zero coupon bond valued at Tk 200 crore at a coupon rate of 6.5% to 7.5%.
Of this amount, the company will use Tk 168.4 crore to finance its new 19 MW gas-based captive power plant project and to repay some bank loans.
Envoy general secretary Saiful Islam Chowdhury told The Business Standard that the two plans for using the funds would help the company cut costs.
Currently, the leading denim exporter uses a 10MW electrical connection through the Rural Electrification Board (REB) as well as its diesel generators capable of producing 4MW of electricity.
But the company is considering dropping both the REB connection because its quality is not up to the task to support the Envoy units, and the generators due to an increase in their operating costs.
The new gas-fired power plant would cut electricity costs by around a third, Saiful Islam Chowdhury said.
The company has already imported Caterpillar generator sets under the Upas LC facility from banks, and the proceeds from the bonds would help the final payments of the captive power project of around Tk 80 crore, he said. .
“Currently, we have to pay an average interest rate of 9% on bank loans, and the proceeds from the bond would save us 200 basis points on interest over Tk 80 crore,” he said. -he adds.
The five-year bond would be redeemed in 10 segments, as investors would get one-tenth of their bond units redeemed every six months.
Envoy is confident that it will continue to reimburse bond investors every six months from the company’s cash flow.
Unlike coupon bonds, zero coupon bonds are sold at a reduced rate and are redeemed at face value. Discount income is exempt from in-country income tax for investors other than banks and insurers.
Earlier, Envoy Textiles announced plans to issue preferred shares worth Tk 87 crore to partially fund its Tk 170 crore project for a blended yarn production unit.
Due to the growing demand for high-value non-cotton yarns and the recent abnormal rise in cotton yarn prices, Envoy preferred to produce the synthetic yarns themselves, Chowdhury said.
The project is expected to be completed by mid-2022 and almost all of the blended yarn is expected to be consumed by Envoy’s denim factory, he added.
Investors would be offered preferred dividends of 7% to 7.5% on non-redeemable preferred shares to be issued for five years.
Both alternative financing instruments will need to be approved by the Bangladesh Securities and Exchange Commission (BSEC).
The company secretary said Envoy continues to explore alternative financing methods for its capital-intensive business because he believes that too much reliance on bank loans weakens a business as well as the financial system.
It will issue preferred shares for the second time, he informed.
Regulatory measures to encourage bonds and other alternative financing methods in recent years have reinforced the firm’s conviction to opt for more diversified instruments, according to Saiful Islam Chowdhury.
Unlike general stocks, against which a company offers investors ownership and no certainty of dividends, preferred stocks do not offer ownership of the company while preferred dividends are an obligation to pay on time if the clause includes it. .
Envoy Textiles was listed on the stock exchange in 2012 and is the first textile factory in the world to win the Platinum Award, certified by Leadership in Energy and Environmental Design (LEED).
Envoy Textiles shares closed 3.2% lower at Tk 47.9 each on the Dhaka Stock Exchange on Thursday.