The company will raise another Nu 1.3B through private placement of shares
DCCL: The Dungsam Cement Corporation Limited (DCCL) is recovering from the initial hiccups in plant operations, with the company seeing a sudden surge in its production capacity in the last 14 days.
Average daily production capacity of clinker in the last two weeks was 2,003.21 metric tonnes (MT) against the installed capacity of 3,000 MT a day, achieving 67 percent of the production capacity.
During the same period, it produced 2,624 MT of cement a day on an average against the installed capacity of 4,136 MT. This was 63.40 percent of the production capacity.
DCCL’s deputy chief executive officer, Karma Gayleg said the company is trying hard to achieve up to 75 to 78 percent production capacity within the next three to four months time. “We are planning to achieve around 85 percent or more production capacity next year,” he said.
Until July this year, production capacity remained below 50 percent for most of the times.
He said that Humboldt Wedag, an international firm with expertise in cement plant technology, equipment, and services, has been working closely with the local employees.
The international firm was hired to enhance capacity utilisation to 60 percent within three months, 65 percent in six months and 90 percent in a year. For every five percent underachievement of capacity, Humboldt Wedag would be slapped a penalty of one percent of the contract fee and the incentive of one percent for overachievement. The firm also assured maximum energy saving.
Increased production capacity would bring down unit cost and make the price of cement more competitive in the market.
More money to be injected
To further lower the debt burden, DCCL will be raising Nu 1.3B from the domestic market through private placement of shares.
Private placement of shares is the sale of securities to a relatively small number of select investors to raise capital unlike the public issue, in which securities are sold in an open market. Investors involved in private placements are usually the institutions.
The National Pension and Provident Fund (NPPF) and the Kidu Fund have agreed to invest Nu 525M each. The Dratshang Lhentshog was also allotted shares worth Nu 200M.
The remaining Nu 50M is expected to come from another investor, which officials from Druk Holding and Investments (DHI) refused to name because the board’s approval was due.
A DHI official said the money would be pumped into the largest cement plant in the country to meet its internal cash flow.
Cash flow is the net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, pay expenses and provide a buffer against future financial challenges.
Part of the fund raised would also be used to liquidate the inter-corporate borrowings. DCCL borrowed about Nu 530M from Druk Green Power Corporation at five percent interest.
Although the inter-corporate borrowings bear minimum interest, still there is some cost on the financing. However, issuing shares would further minimise the financing cost.
DHI is keen on reducing the debt burden because of the total loss of Nu 1.1B DCCL suffered last year; Nu 671M is attributed to financing cost and Nu 415M to depreciation. The actual operational loss was Nu 42M.
DHI officials said the Rs 2B loan availed at 10 percent interest from a consortium financing of State Bank of India, Union Bank, Punjab National Bank, Export and Import bank of India has been serviced from the series of bond it had issued.
This is why the DCCL has managed to reduce the cash flow burden by Nu 300M annually and saved Nu 85M on interest.
To float an initial public offering (IPO) of shares, IPO rules and regulations mandates a company to make profit for at least two years. This disqualifies DCCL to go for IPO.
However, Karma Gayleg said DCCL is optimistic to generate profit by the end of this year, should the production capacity hover between 70 and 75 percent of the installed capacity, minus the uncertainties.
“If the company is able to come out of the red this year and generate more profit in 2016, DCCL would go for IPO by 2017.” he said.