The Dungsam Cement Corporation Limited (DCCL) will float another bond anytime soon to meet its debt obligation according to Druk Holding and Investments (DHI), its parent company.
Ever since the company was established early 2014, Dungsam Cement Corporation Limited has been under-performing in terms of sale of cement. In 2014, during its first year of operation, the company earned a gross revenue of Nu 1.6B.
The revenue is lesser than the amount it is required to pay for the loans taken to build the project.
Dungsam cement was expected to earn a gross revenue of Nu 6B annually out of which around Nu 2B was to be used for loan repayment.
DHI chairman Dasho Sangay Khandu said the company would be floating a bond anytime soon so it does not default on its loan repayment. The amount of bond, the company would be floating is not known as of today.
This will be the third issue of bond the company would be floating to the public for investment. Dungsam floated bonds worth Nu 700M in October last year and another bond worth Nu 1.2B in March in the same year.
A 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.
Dungsam cement, the chairman said, has not even been able to run at half its total capacity today, but by this year-end, production he said would pick up gradually. It is also in the process of reaching an agreement with Punatshangchhu I and II for the sale of cement to Larsen and Toubro, which has preferred to buy cement from India over Dungsam.
Dungsam has also been facing stiff competition with Indian cement factories in Northeast India. Cement plants in Northeast enjoy huge subsidy from the Indian government, Dasho Sangay Khandu said, this was seriously affecting Dungsam’s competitive edge.
The slump in the local economy and a consequent drop in construction activity also affected cement sales in the domestic economy as demand for cement dropped.
In an email interview with DCCL’s chief executive officer, cement production has been increasing this year compared to the previous year. last year, the average production of cement a day was recorded at 607 metric ton, today it has increased to 1,257 metric ton a day.
Dungsam cement plant’s under-performance has also been affecting the business of Dungsam Polymers, a company that manufactures cement bags. The polymer company, which is also a subsidiary of DHI, floated an initial public offer worth Nu 66.5M in 2013.
The shares were floated with a premium costing Nu 165 a share.
The shares were thrice oversubscribed. DHI chairman did not want to comment on whether it was justified to sell its share at a premium since today the company was not able to perform as well as it was expected back then.
