This is the third series of bond the company issued
Bond: The Dungsam Cement Corporation Limited (DCCL) has floated its third series of bond worth Nu 1.5B (billion) at eight percent coupon rate to prepay the company’s high interest bearing loans.
However, Nu 1.2B of the total issue size has been privately placed to commercial banks. Bank of Bhutan was allotted Nu 935M (million), Druk PNB was allotted Nu 250M and Bhutan Insurance Limited was allotted Nu 15M. This leaves behind Nu 300 for public issue.
An official from Druk Holding and Investment (DHI), Dungsam’s parent company, said private placement of bond was issued because the market cannot absorb the total size of bond issued. “We are not quite sure whether Nu 300M would be fully subscribed or not,” he said.
This was because the coupon rates are competitive. Royal Insurance Corporation of Bhutan Limited (RICBL) has also issued Nu 1.5B corporate bond at 9.5 percent coupon rate. Both DCCL and RICBL have the same face value of Nu 1,000 a unit with maturity of seven years.
This, the official said has attracted some financial institutions and individual investors. He said a meeting was held with all the financial institutions in February this year and most of them were committed to invest in the bond. But when RICBL’s fourth series of bond was issued, few banks chose to invest in RICBL.
DCCL has an outstanding debt of Rs 1.13B availed from a consortium financing of State Bank of India, Union Bank, Punjab National Bank, Export and Import bank of India. With the bond issued, the company expects to prepay Rs 1.05B.
This according to official would lower the cost of borrowing. For the same, DCCL also borrowed about Nu 530M from Druk Green Power Corporation at five percent interest.
In an earlier interview, the chairman of DHI, Dasho Sangay Khandu said this is an inter-corporate borrowing approved by the DHI board to reduce the cost of borrowing by pre paying some high interest bearing loans.
DHI also serves as a guarantor for the bond issued and is liable if the obligations are not met. This is because bond is a debt instrument issued by a company when it wants to raise money from the public to invest in various areas or to meet its debt obligation.
Unlike shares, which are equities, bonds are debt instruments. When an individual subscribes to a bond, he does not hold any ownership in the company, rather the company is obliged to pay back the investment made by the individual with interest.
Bonds are less risky, as they are secured against a company’s assets.
Dungsam floated bonds worth Nu 700M in October last year and another bond worth Nu 1.2B in March, the same year. The second series bond of Nu 700M was used to pre-pay the loan with NPPF.
Meanwhile, DCCL is expected to incur a loss of Nu 42 M this year and its profit is project to climb to Nu 274M in 2018.DCCL has a production capacity of 1M tonnes of clinker and 1.36 M tonnes of cement per year.
However, owing to stiff competition in the neighboring states of India and hydropower contractors like L&T not procuring cement from Dungsam, the company is still operating at half of its installed capacity.
By Tshering Dorji