DHI Companies to take a big revenue hit due to COVID-19

Most Druk Holding Investment (DHI) Companies will take a revenue and profitability hit for 2020 due to COVID-19 which will affect the government coffers in the form of dividends and Corporate Income Tax.

The only exceptions will be Druk Green Power Corporation (DGPC) where hydrology will play a role and Bhutan Telecom which will see increased revenue due to higher telecom usage.

The Bank of Bhutan was projected to make a profit of Nu 1.3 bn in 2020, however, COVID-19 happened and all profits have gone for a toss.

The BoB CEO Dorji Kadin said that the interest waiver for three months cost the bank Nu 500 mn. He said there are various scenario projections and one scenario is that if the current situation continues BoB can make a profit of Nu 250 mn by the end of 2020 but if the situation gets worse then it will head into a complete loss for the year.

The hardest hit DHI company has been Druk Air. Its CEO Tandi Wangchuk said that originally Druk Air was supposed to make a revenue of Nu 5.5 bn with a profit after tax of Nu 290 mn for 2020.

However, now the revenue forecast is only Nu 1.3 bn with a Nu 1.2 bn immediate loss. The CEO said there has been around 8,000 cancellations coming to around Nu 330 mn and so that means that total loss is Nu 1.5 bn for Druk Air.

Druk Air is currently afloat as it resorted to inter-corporate borrowings of Nu 500 mn from DHI and it has taken a Nu 229 mn loan from BoB at 5% as per the monetary scheme for impacted sectors. Druk Air, however, still needs Nu 800 mn and the CEO said that it is looking at various options.

What has made matters worse for Druk Air is that it bought a new Airbus this year and an ATR last year and so it has to make loan payments on these two big purchases.

The problem for Druk Air and other DHI companies is that the RMA rules do not allow related party transaction or borrowings between BoB and other DHI companies beyond 50 percent of BoB’s capital which comes to Nu 3.3 bn.

This 3.3 bn limit is already close to being exhausted and so DHI is hoping that it can request the RMA to make an exception given the extraordinary situation of COVID-19.

Another major company DHI company that will be impacted is Bhutan Power Corporation (BPC).

An official there said that the initial forecast was a profit of Nu 1.2 bn in 2020 but given the situation so far there is already a decline of Nu 200 mn in profits projected.

The official said that if the situation continues beyond June then the drop in profits will be even more than the Nu 200 mn.

The official explained that around 70 percent of BPC’s power is consumed by Bhutanese industries and since many of them are either shut or not operating at full capacity it impacts BPC. Another revenue impact is that as per fiscal measures the demand charges of industries which was based on allocation is now only based on consumption.

The State Mining Corporation Limited (SMCL) has been in the news for the large increase in revenue and profits it made in 2019.

However, 2020 looks to be a very different and tough year.

The SMCL said that even if the current situation continues its profit would be down by around 50 to 60 percent this year and if the situation gets worse then the figures will be even worse.

As an example, the company is supposed to do Nu 150 mn of business per month but is currently doing only around Nu 50 mn which is a drop of two-thirds.

The Natural Resources Development Corporation (NRDCL) Finance General Manager Sonam Choephyel said that NRDCL was originally projected to make a revenue of Nu 910 mn with profit of Nu 67 mn but this is reduced to a revenue of Nu 761 mn and profit of Nu 8 mn only.

He explained that given NRDCL’s social mandate it provides sand and timber for almost the cost rate and the only place it was making profits was with the export of boulders which has been impacted due to COVID-19 thus hitting the profits and revenue.

He said there is also reduced demand for timber.

The NRDCL revenue would be even lower if not for the Gyalsung project construction.

The Dungsam Cement Corporation said it was expected to make a small profit this year but under the revised budget it will make a loss due to COVID-19 impacting it.

In the case of DGPC the MD Dasho Chhewang Rinzin said that DGPC would not be impacted and the revenue would depend on hydrology.

He said last year DGPC made Nu 12 bn in revenue with Nu 7 bn profit and Nu 4.9 bn in profit after tax.

There have been some hopes that generation will increase this year due to the cyclone and heavy and early rainfall.

However, the MD said that the generation so far is almost the same as last year at the same point since there was less water in the beginning months thus year and so only a catch up is happening.

The MD said what happens in the remaining month of June will be important as July and August normally has full generation.

The MD said that DGPC has enough stocks for repairs and so operation and maintenance should also not be a problem.

The only DHI company which will see increased revenue and profit will be Bhutan Telecom.

BT CEO Karma Jurme said the aim of BT in 2020 is Nu 4.5 bn which is up by around 10 percentcomparede to last year.

The jump is due to large scale increase in the use of telecom services from phones to internet due to online classes, meetings and working from home guidelines.

The CEO said it is not like BT is making a lot of revenue and profits as people would imagine.

In 2018 the DHI contributed Nu 13 bn in dividends, taxes and royalties to the government exchequer making it the largest source of domestic revenue for the government.

The 2019 revenue figures are yet to be released by DHI but it should not be very different from 2018.

The real drop will be in 2020 due to COVID-19.

The annual budget of the government of 2020-21 seems to have factored this in projecting a 14 percent decrease in revenue in the budget compared to the previous financial year.

The above figures, except for DGPC and BT, could get much worse if the situation gets worse through community transmission and lockdowns or restrictions.

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