Dungsam Polymer Limited (DPL) is encountering serious cash flow problems and an acute shortage of working capital, putting the company in a difficult situation.

The DPL, which is in its sixth year of operation is yet to come out of the red.

In addition to term-loan balance of Nu 113M from NPPF, the company has Nu 20 million Inter-Corporate loans from DHI. “On our request, DHI’s Inter corporate loan has been extended repeatedly despite serious audit observations made to DHI,” the rights issue prospectus paper stated. However, further extension will not be given. The company is also finding it difficult to raise additional capital from financial institutions, as the company’s debt exposure is already very high.

According to paper, statutory auditors in 2017 indicated that the company is in financial distress. A detailed financial analysis was conducted and it appeared that enhancement of share capital by way of offering Rights Issue is the most suitable solution.

The proposal is to raise share capital of about Nu 70 million and the proceeds from the sale of Rights shares will be used for partial retirement of debt and replenishment of OD to improve working capital. This is expected to bring significant improvement in the cash-flow as there will be substantial reduction in EMI payment.

The company has been able to reduce its loss by a huge margin, from about Nu 20M in 2016 to Nu 6.25M last year. According to its audited accounts, losses are mainly due to depreciation and high finance cost driven by its high loan repayment.

According to DPL’s audited financial statement, the company suffered a loss of Nu 19.2M in its first year of operation in 2012. The company suffered the biggest loss of Nu 28.1M in 2014.

Since the DPL was established to produce and supply plastic polythene bags for the country’s largest cement plant, Dungsam Cement Corporation Limited (DCCL), the capacity of the former is suppressed by under-performance of the latter.

Should the cement plant run on full capacity, it would require 83,000 bags a day against DPL’s capacity of 100,000 bags a day.  But when there isn’t absorptive capacity at the cement plant, the polymer plant is forced to limit its production.

For DPL to break even, it needs to produce 60,000 to 65,000 bags in a day.


The rights issue

About 3.15M unsubscribed rights issue of DPL shares is on auction in the secondary market.

The DPL offered 70M rights shares at face value of Nu 10 a share last month, of which more than 66.8M shares were subscribed by the existing shareholders.

Rights offer is an issue of shares offered at a special price by a company to its existing shareholders in proportion to their holding of old shares.  The DPL issued rights shares at 84.61 percent on the current shareholding.  This means that if a DPL shareholder has 100 shares, he/she can subscribe to 84.61 shares through the rights offers.

Unlike in the past where the company offering rights issue took back the unsubscribed shares, the Royal Securities Exchange of Bhutan (RSEB) has developed new regulation to auction the unsubscribed shares through its online platform. In June last year, the RSEB auctioned another 3.1M unsubscribed rights issue of Druk PNB. This makes it possible for individuals who don’t own DPL shares to participate.

After the auction and transaction is complete, the company will get only Nu 10 a share, the initial offer price and not the entire market price. Anything above Nu 10 goes to the shareholders who did not subscribe to the rights.

For instance, if an existing DPL shareholder has one share and that person did not subscribe the rights issue, his rights will be put up in the auction. If it is sold at Nu 15 in the auction, Nu 10 will go to the company and this shareholder will get to keep the remaining Nu 5.

This new practice, according to the officials from the RSEB would provide everyone an opportunity to participate in share trading.


Tshering Dorji