Company issue preferred stock

1. 1
Assignment # 3
On
CAPITAL MANAGEMENT
Topic: Preferred Stock
Roba Ali
G1F18BBAM0072
Submitted To:
Dr. Muhammad Azeem
Session: 2018 – 2022
BBA 8(Fin)
BACHELOR OF BUSINESS ADMINISTRATION
University of Central Punjab Gujranwala, Pakistan
25 May, 2022

2. 2
S no. Table of Content P no.
1 Preferred stock 3
2 Types of Preferred stock 3
3 Pros and cons 4
4 Companies issues preferred stock 4
5 Power cement limited 4
6 Husein Sugar Mills Limited 5
7 Philip Morris (Pakistan) Ltd 6
8 Engro polymer and chemical limited 6
9 Phillips 66 7
10 Descon Oxychem Limited 7
11 Security Leasing Corporation Limited 8
12 Pakistan Petroleum 8

3. 3
Preferred Stock
Preference shares, also called preferred stock, are so-named because preferred
shareholders have a higher claim on the issuing company's assets than common
shareholders. In the most extreme case, this means that preferred shareholders must be
paid for their interest in the company before common shareholders in the event of
company bankruptcy and liquidation.
“Preferred shares are a hybrid form of equity that includes debt-like features
such as a guaranteed dividend.”
The day-to-day implication of this claim is that preferred shares guarantee dividend
payments at a fixed rate, while common shares have no such guarantee. In exchange,
preferred shareholders give up the voting rights that benefit common shareholders. The
four main types of preference shares are:
 Callable shares
 Convertible shares
 Cumulative shares
 Participatory shares
Callable Preferred Shares
Callable shares are preferred shares that the issuing company can choose to buy back
at a fixed price in the future. This stipulation benefits the issuing company more than
the shareholder because it essentially enables the company to put a cap on the value of
the stock.
Convertible Preferred Shares
Convertible shares are preferred shares that can be exchanged for common shares at a
fixed rate.2 This can be especially lucrative for preferred shareholders if the market
value of common shares increases. Once the shares have been exchanged, the
shareholder gives up the benefit of a fixed dividend and cannot convert common shares
back to preferred shares.
Cumulative Preferred Shares
Preference shares that include a cumulative clause protect the investor against a
downturn in company profits. If revenues are down, the issuing company may not be
able to afford to pay dividends. Cumulative shares require that any unpaid dividends
must be paid to preferred shareholders before any dividends can be paid to common
shareholders. If a company guarantees dividends of $10 per preference share but cannot
afford to pay for three consecutive years, it must pay a $40 cumulative dividend in the
fourth year before any other dividends can be paid.

4. 4
Participatory Preferred Shares
Participatory preference shares provide an additional profit guarantee to shareholders.
All preference shares have a fixed dividend rate, which is their chief benefit. However,
participatory shares guarantee additional dividends in the event that the issuing
company meets certain financial goals. If the company has a particularly lucrative year
and meets a predetermined profit target, holders of participatory shares receive dividend
payments above the normal fixed rate. Each type of preferred share has unique features
that may benefit either the shareholder or the issuer.
In Pakistan, Previous 5years companies issues preference
stock
Pros Cons
Regular dividends Few or no voting rights
Low capital loss risk Low capital gain potential
Right to dividends before common
stockholders
Right to dividends only if funds remain
after interest paid to bondholders
Right to assets before common
stockholders
Right to assets only after bondholders
have been paid

5. 5
Preference Shares by way of right issue: Husein Sugar Mills
Limited

6. 6
Philip Morris to issue Rs11bn preference shares
KARACHI: Philip Morris (Pakistan) Ltd on Tuesday proposed to issue preference
shares of up to Rs11 billion. It stated in a filing with the stock exchanges that the board
had approved an irredeemable, non-voting, non-cumulative and convertible preference
shares at Rs10 per share to Philip Morris Investments BV and Philip Morris Brands
Sarl, which own 77.65 per cent and 20pc ordinary shares of the company, respectively.
The issue was being made to tide over the “increasing financing costs coupled with
planned capital expenditures”. An extraordinary general meeting of shareholders has
been called on Oct 28 to discuss and approve the issuance.
The issuance was subject to all regulatory approvals. The first tranche of Class A
preference shares of Rs7.5bn would be issued before June 30, 2016 while the remaining
Rs3.5bn would be issued by Dec 31, 2017. To ensure sufficient working capital and to
retire its liabilities of various lenders, the company had been evaluating options for
raising financing, up to Rs11bn, including but not limited to issuance of new shares.
“The company is now proposing that the entire amount be raised by equity investment,”
directors said, adding that the board believed that in the light of company’s financial
performance, there would be low investors’ confidence and the shares, if offered
locally, will not be fully subscribed and as a result an issue of shares with rights was
not feasible.
Chracteristics:
 Listed
 Perpetual ( subject to conversion option and call - option )
 Cumulative

7. 7
 Call - option - Exercisable by the investor after the expiry of twelve months
from the issue date in full or part
 Conversion option - Exercisable by the investor after the expiry of eighty
months from the issue date based on a 1 : 1 ratio
 Non - voting
 Preferential dividend calculated at the rate of 6 - month KIBOR + 3.5 % per
annum , on a cumulative basis and payment of the same shall be at the
discretion of the Board of Directors and shall be in priority to ordinary
shareholders
 Preference over ordinary shares in the event of liquidation / winding up of the
company
Phillips 66 Preferred Stock
Preferred stock is a special equity security that has properties of both equity and debt.
Phillips 66's preferred stock for the quarter that ended in Mar. 2022 was $0 Mil. And
its chracteristics:
 The market value of preferred stock needs to be added to the market value of
common stocks in the calculation of Enterprise Value. Phillips 66's Enterprise
Value for the quarter that ended in Mar. 2022 was $52,967 Mil.
 In the calculation of book value, the par value of preferred stocks needs to
subtracted from total equity. Phillips 66's Book Value per Share for the quarter
that ended in Mar. 2022 was $45.34.
 Dividends paid to preferred stocks need to be subtracted from net income in the
calculation of Earnings per Share (Diluted). Phillips 66's Earnings per Share
(Diluted) for the three months ended in Mar. 2022 was $1.29.
Redemption Preference shares of Descon Oxychem Limited
April 29, 2019
Characteristics:

8. 8
SLCL okays 50pc preference shares
KARACHI, June 3: The members of Security Leasing Corporation Limited (SLCL)
approved the 50 per cent right issue of preference shares at the company’s extraordinary
general meeting (ExGM) on May 31, a press release by the company said. The
preference shares carry minimum cumulative dividend of 15 per cent per annum and
have options for redemption as well as conversion into ordinary shares at lower of
break-up value or market value plus 40 per cent of the difference between the break-up
value and the market value. “The right issue is subject to the approval of Securities and
Exchange Commission of Pakistan and is expected to be subscribed by the end of July
2020,” the press release stated.
Characteristics:
In a separate notice to the Karachi Stock Exchange on Monday, the company mentioned
that the rights issue of preference shares, class I, would be in the sum of Rs50 million.
The call option can be exercised any time after 12 months from date of issue and put
option at six months’ notice in three equal trenches, between 30th and 36th months;
between 42nd and 45th months and between 54th and 60th month from the date of
issue, with option for conversion into ordinary shares at market value if preference
shares not redeemed on due date after notice. It said that one director on the board would
be elected by the preference shareholders. Following the completion of the right issue
of preference shares, the SLCL’s equity base would increase to Rs200 million, thus
meeting the minimum capital requirement of the SECP for leasing companies. The
equity base consists of paid-up capital, share premium, statutory reserves, distributable
reserves and un- appropriated profits, but excludes other non-distributable capital
reserves.
Pakistan Petroleum Preferred Stock
Preferred stock is a special equity security that has properties of both equity and debt.
Pakistan Petroleum's preferred stock for the quarter that ended in Mar. 2022 was $0.00
Mil.
 The market value of preferred stock needs to be added to the market value of
common stocks in the calculation of Enterprise Value. Pakistan Petroleum's
Enterprise Value for the quarter that ended in Mar. 2022 was $-316.11 Mil.
 In the calculation of book value, the par value of preferred stocks needs to
subtracted from total equity. Pakistan Petroleum's Book Value per Share for the
quarter that ended in Mar. 2022 was $10.89.
 Dividends paid to preferred stocks need to be subtracted from net income in the
calculation of Earnings per Share (Diluted). Pakistan Petroleum's Earnings per
Share (Diluted) for the three months ended in Mar. 2022 was $.