The troubled Ring Shine Textiles reported a record loss in FY23 amid doubts hovering over the ownership transfer to another local textile company and five Singaporean entities, approved nearly a month ago.
The Bangladesh Securities and Exchange Commission (BSEC) attached some conditions to the change of ownership, but company secretary Auniruddho Piaal said there had been little progress to that end.
One of the conditions requires Wise Star Textile to assure that it will regularise or arrange to regularise the entire bank liabilities of Ring Shine.
At present, bank loans of Ring Shine amount to Tk 5.50 billion, with Tk 800 million owed to the Dhaka Export Processing Zone in Savar.
Mr Piaal said he was skeptical about the ownership change as the process was yet to begin.
Meanwhile, a loss of Tk 1.25 billion in FY23 drove up the company’s cumulative losses to Tk 2.91 billion over the last three financial years.
The company said it had been hard hit by high finance expenses, foreign exchange losses and utility costs.
All financial indicators of the company, such as earnings per share, net operating cash flow per share, and net asset value per share were in the negative for the past three consecutive years.
Due to working capital shortage, the company could utilise only 22 per cent of its production capacity in FY23. There was also a decline in orders from foreign buyers.
Mr Piaal said they were getting fewer orders from buyers, as the company was about to change ownership.
As per the regulatory approval, Wise Star Textile and five Singaporean companies would acquire 190.03 million shares of Ring Shine, and the share transfer would be held outside the trading system at a negotiated price.
The company secretary said both sides were yet to come to a consensus for share transfer.
The proposed owners will also have to bear the existing liabilities, including bank loans and other dues of Ring Shine and take control of its assets.
Ring Shine has over Tk 10 billion worth of assets.
If the share transfer happens, the securities regulator will allow the release of the unused IPO fund for smooth operation of the company.
Ring Shine Textiles raised Tk 1.50 billion under the fixed price method in 2019 for acquisition of machinery & equipment and loan repayment.
Of the IPO fund, the company used Tk 535 million as of August 2020. After that the BSEC blocked the use of the remaining fund as it became aware of widespread malpractices committed by sponsor-directors.
Pre-IPO financial fraud
After the listing, anomalies in the balance sheet of the company came to light.
The company had raised its paid-up capital from Tk 99.50 million to Tk 2.85 billion by issuing pre-IPO shares, known as placement shares, to the then sponsors, directors, and 73 external local shareholders.
But 11 sponsor-directors and 33 external shareholders did not make any payment against the shares given to them.
Then the Covid-19 pandemic broke out, and Ring Shine saw the demand for its products fall sharply from foreign buyers.
Ring Shine mainly manufactures dyed yarn and gray and finished fleece fabrics of various qualities for both local and international markets.
Working capital shortfall, a decline in orders, and raw material shortage led to a shutdown of the factory in September 2020.
The BSEC restructured its board in January 2021, appointing seven independent directors to observe the company’s overall condition and make a plan on how to salvage the company out of its misery.
In June 2021, the factory went back into production but partially.
Meanwhile, the stock has remained stuck at the floor price of Tk 9.8 since September last year.
The company distributed 15 per cent stock dividend for FY19. For the last three fiscal years, the company declared no dividend.
Although the previous board recommended 1 per cent cash and 1 per cent stock dividend for FY20, the reconstituted board cancelled the decision owing to losses confirmed by a revaluation of its assets.