The acquisitions of power producing sister concerns over the recent years are now paying off to United Power Generation and Distribution Company Ltd (UPGDCL).
The two subsidiary companies, where the listed power company owns 99% shares, together are going to pay Tk891 crore in interim dividends for the second time in the current fiscal year, in addition to their already paid interim dividends of Tk742.5 crore for the first half of the fiscal year.
Analysts said the interim dividends together are going to the largest ever dividend income by any listed company in Bangladesh in a single year.
In a regulatory filing on Sunday, UPGDCL said its subsidiary United Energy Ltd will disburse Tk750 crore in interim cash dividends for the January-March (third) quarter and UPDGCL as the owner of 99% shares will get Tk742.4 crore out of that.
United Energy already paid Tk600 crore in interim dividends for the first half of the fiscal year, of which Tk594 crore was received by the listed company.
Also, United Jamalpur Power Ltd, which gave UPGDCL Tk148.5 crore in interim cash dividends for the first half of the current fiscal year, is set to give another round of the same cash dividends based on the financials up to the end of last March.
Impact on EPS
The incoming cash is UPGDCL's dividend income and will boost its earnings per share (EPS) on a solo basis.
However, since the amount is out of the subsidiaries' current profits and retained earnings and those are already in the consolidated financial statements of the listed company, the dividend income will not be added to consolidated profit and loss account and will not increase the consolidated EPS, explained UPDGCL Company Secretary Bardul H Khan who is a chartered accountant.
Why the huge intercompany cash transfer?
Since the announcement appeared at the bourses' electronic screen, investors became curious about the huge interim cash dividends from subsidiaries which would not impact consolidated EPS.
UPDGCL did not take any cash dividends from any of our direct subsidiaries over the years, despite the fact that they had a huge retained earnings, mainly due to the listed company itself running with huge cash, according to Badrul H Khan.
The listed company spent Tk535.7 crore in mid-2020 to acquire 99% shares of its sister concerns United Anwara Power Limited, a 300 MW heavy fuel oil (HFO) fired power plant at Chattogram and United Jamalpur Power Ltd, an 115MW HFO-fired power plant at Jamalpur Sadar.
Both the companies were acquired at their respective net asset values, Tk337.6 crore for United Anwara and Tk198.1 for United Jamalpur.
Previously, UPGDCL paid huge cash dividends, the highest among local listed companies, out of its own cash.
And now, since it spent form the own cash pile to own the said subsidiaries, the listed company needs cash from the subsidiaries at its own accounts which would enable UPGDCL pay high dividends to its own shareholders, said Mojibul Islam Patoary, assistant general manager for finance and accounts.
Through the process of acquisition and taking back a substantial portion of the subsidiaries' retained earnings in form of cash dividends, the listed company is also consolidating its structure as a power plant holding company, Patoary said.
Interestingly, the biggest portion of cash dividends is coming from United Energy Ltd which the listed company acquired for Tk2.97 lakh at the beginning of 2019-20 fiscal year.
The company's Managing Director Moinuddin Hasan Rashid previously told The Business Standard the acquisition of United Energy Ltd is a gift to the minority shareholders of the listed company from its sponsors, as it let UPDGCL acquire the power holding sister concern at a meagre paid up capital, substantially low from the fair value.
United Energy itself operates one 53MW gas fired quick rental power plant at Ashuganj which is looking for power selling contract renewal with the government following its decade of services, a 28MW gas fired independent power plant at Sylhet.
Most importantly, it owns more than 92% shares of United Ashuganj Energy Ltd, a 195MW gas-fired plant established under a public-private partnership model.
Since the subsidiaries run traditional power plants they tend to generate less revenue and profits against their capacities, compared to those by the mother company UPGDCL.
UPGDCL, which itself operates an 86MW commercial independent power plant at Dhaka EPZ and another 72MW one at CEPZ, made Tk435 crore in net profit over the last fiscal year, while both the United Jamalpur and United Energy generated less than half of that despite its more power generation capacity.
As the lone commercial independent power plant, UPGDCL has the freedom to sell power to export oriented factories and other nearby clients at the two export processing zones at Dhaka and Chattogram, and the clients usually pay much higher price for the high quality and uninterrupted power they get.