The Dhaka Stock Exchange has issued a query letter to a corporate director of United Power Generation and Distribution Company Ltd, asking why the company has not executed the share selling declaration.
On August 6 this year, United Mymensingh Power Ltd, a corporate director of the listed power producer, had expressed its intention to sell 1 crore of United Power shares in block market within 30 working days. Its total holding in United Power is 90 percent, amounting to 43.12 crore shares.
But the sale declaration was not executed despite the expiry of the 30 working-day deadline. This is a violation of securities rules because such expressions by insiders to buy or sell is not revocable.
Director and group chairman of United Power Generation and Distribution Company, Hasan Mahmood Raja, told The Business Standard that the sale declaration was not executed because they could not get the target price.
"We had a deal with a foreign investor who agreed to invest $100 million to buy United Power shares from the corporate director, which is the lion shareholder of United Power."
"In the share purchase agreement, we included a minimum striking price for the transaction to take place," he said.
The target price was based on the secondary market price of United Power shares.
But due to the bearish market condition, the price of United Power shares had suffered an over 25 percent correction within the planned 30 working days.
The foreign investor also lost interest in executing the deal because the shares are cheaper in the open market now, said the group chairman.
"We opted out because we are not interested in selling the shares at a lower price. Who wants to?" said Raja, the key entrepreneur of both United Power and the holding company.
A holding company owns majority shares of another company to control the business from its board of directors.
The unexecuted deal
In August, sources connected to the deal had confirmed to The Business Standard that an emerging market fund managed by Wallstreet-based GEM global was on the buyer side.
United Mymensingh was to receive $100 million of investment from the foreign fund, equivalent to around Tk850 crore.
Market analysts believed that the sale of 1 crore shares would cover half the total investment.
Australia-based investment bank Blue Mount Capital was acting as the facilitator of the deal.
United Power Generation and Distribution Ltd
United Power was exclusively awarded the contract to build and operate two commercial independent power plants (CIPP) at the Dhaka and the Chittagong export processing zones.
The government allows the company to sell power to the EPZ factories directly through the company's own distribution network. By providing a quality power solution from its gas-based combined cycle power plants, United Power is enjoying the highest profit margin because it can sell power at any privately negotiated price.
All other private sector power producers of the country are selling power to the government only at a lower profit margin.
United Power, with its unique business model, became the return on equity champion in the local power industry, and in 2015, it was listed at both the local stock exchanges.
Since then it has been one of the highest dividend-paying listed local companies. It is also in a trend to merge other power plants owned and operated by its entrepreneurs. The profit margin of the traditionally modelled plants is not as high as that of the two CIPP plants.
Several generous merger and amalgamation schemes in recent years have been increasing the listed company's asset value and earning per share.
Its stock price also reflected the added power generation capacity and increased financial figures.
In the beginning of 2018, United Power shares started to take off from its two-year's consolidation base of around Tk150 each share. In August this year, it was above Tk410 at the Dhaka Stock Exchange.
The price recently nosedived to below Tk252 per share, but rose to Tk286 on Tuesday.