November 06, 2024 (MLN): Mughal Iron & Steel Industries Limited (PSX: MUGHAL) has reached a decision to issue 50 million Unlisted Ordinary Class-C shares—an eye-catching move that grants each holder fifty votes per share, offering greater influence in contrast to the typical one vote per share.
In its notice to the PSX yesterday, the company shared that it has received approval to issue these right shares, representing approximately 14.90% of the existing paid-up capital of the company, at a price of Rs30 per share, which includes a premium of Rs20.
MUGHAL justified this premium by linking it to one of the characteristics of these class C shares, which is the lack of the right to dividends and bonuses. Thus, the decided price/premium reflects the voting rights associated with these shares.
To highlight the significant voting power in numerical terms, the new share class will provide voting power equivalent to 2.5 billion ordinary shares, against MUGHAL’s current total issue of 335.63 million ordinary shares.
On the other side, in addition to no right to dividends and bonuses, Class-C shares are non-convertible and will have no right over any right shares issued by the company from time to time.
Moreover, ordinary Class-C shares are participatory in surplus assets in case of liquidation of the company.
MUGHAL’s purpose
Through this share issue, if fully subscribed, the company would raise Rs1.5 billion, which will be entirely allocated for existing working capital financing.
As per the company, its working capital is currently financed by a mix of bank and debt instrument borrowings.
Hence, the objective here is to replace the debt-financed portion of working capital with equity financing, aligning with the company’s broader strategy to fortify its financial position to enhance profitability and, consequently, provide greater shareholder return.
This will be achieved through savings in the form of a reduction in overall markup cost, injection of permanent capital, increase in equity, improved cash flows, and lowering of leveraging.
Furthermore, as these shares do not carry dividend rights—as mentioned above—there will be no dilution of Earnings per share as well, which will instead improve on account of markup savings.
Recent Financial Performance
Finance costs were one of the key highlights in the company’s profit and loss statement for the first quarter of the ongoing fiscal year (FY25), witnessing a substantial increase of 20.26% YoY to Rs1.9bn.
This also underscores the primary reason why the company aims to reduce its debt cycle through the issuance of shares.
MUGHAL suffered a loss of Rs23.71m in the first quarter of the ongoing fiscal year (FY25), due to a decrease in gross margins on account of a drop in selling prices and a significant increase in finance costs.
Out of the consolidated loss, Rs23.59m was attributed to equity holders of the holding company, with the remaining amount being attributable to the non-controlling interest.
Within the ferrous segment, overall volumes witnessed an increase. Meanwhile, within the non-ferrous segment overall volumes dropped mainly due to in-house consumption of iron instead of external sales.
Gross margins of the ferrous segment declined, whereas, those of non-ferrous segments witnessed improvement.
Within the energy segment, since it is yet to commence commercial operations, therefore, it posted an insignificant loss during the quarter, which was mainly on account of salaries, fees & subscriptions and various routine expenses. However, profitable results are anticipated post-achieving commercial operations.
On a standalone basis, MUGHAL managed to book a meager profit of Rs6.95m on account of a significant tax credit worth Rs227.88m.
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Posted on: 2024-11-06T14:56:40+05:00
