Aman Cotton ‘illegally’ lends money to sister concerns

Aman Cotton Fibrous Ltd (ACFL) has lent money to its sister concerns allegedly violating rules of the securities regulator. 

The company – listed on the country's both stock exchanges – also allegedly breached rules of related party transactions, according to its financial statement published on June 30, 2019. 

The Bangladesh Securities and Exchange Commission (BSEC) on November 27 asked the company to explain its activities within seven working days, and later extended the time by another seven days.  

Loans to sister concerns 

In the last audited financial statement, the company has shown Tk25.49 crore as loan to its sister concerns. It is equal to 25 percent of the company's paid-up capital.  

According to the BSEC directive, an issuer company cannot give loan, guarantee or securities without an approval from its board of directors and the shareholders at an annual general meeting. 

The securities regulator suspects that the company has given loans to its sister concerns without approval of shareholders.

In the last financial statement, the company has shown accounts and other receivables of Tk57.47 crore and inventories of Tk130.34 crore against revenue of Tk127.89 crore. Here, the receivables are 45 percent and inventories are 102 percent of the revenue. The BSEC has sought information regarding the transaction to verify it. 

Violation of rules in related party transaction

In the audited financial statement on the related party transaction, the company has shown a total amount of Tk120.42 crore transacted among four firms of Aman Group. 

This amount is 119.42 percent of the company's paid-up capital.

Of the amount, the company has transacted Tk48.34 crore with Aman Tex Ltd, Tk55.65 crore with Anwara Manan Textile Mills Ltd, Tk12.08 crore with Aman Cement Mills unit-2 and Tk4.35 crore with Aman Jute Fibrous Ltd. 

This way the company has allegedly violated the BSEC directive issued on June 1, 2009.

According to the directive, a listed company will not make contract for the sale or purchase of assets of 1 percent or above of the total tangible assets or for the supply of goods and material amounting 1 percent or above of the revenue without the approval by an AGM.

Besides, if the company makes such types of contract, it has to disclose the nature and amount of the contract to the commission and stock exchanges through fax and special messengers within thirty minutes. They also have to publish the information on two widely circulated newspapers in Bengali and English.

Here, the BSEC thinks that the company has made transaction without approval of general shareholders and it has not given any discloser about this. 

BSEC's opinion on ACFL

The BSEC has asked for the minutes of relevant board of directors' meeting, relevant AGM, and agreement for supply of goods and services.

The company has to submit the details of transactions with relevant attested bank statements and necessary documents in this regard. 

BSEC sources said if the company fails to submit relevant documents in time, it might face a special audit. 

BSEC Executive Director and spokesperson Md Saifur Rahman told The Business Standard, "If BSEC finds any anomaly in the documents submitted by the ACFL, the commission will take action against the company."

ACFL's Company Secretary Mohammad Monirul Islam refused to comment on the issue while Managing Director Md Rafiqul Islam did not receive the phone call by the reporter. 

Failure to use IPO funds 

Aman Cotton Fibrous Ltd also failed to utilise initial public offering (IPO) funds in due time. The company was supposed to repay loans fully with the IPO funds, but it did not.

At the end of October 2019, the company has utilised Tk8.25 crore out of Tk80 crore of the IPO funds. 

The company is yet to repay Tk5.39 crore loans out of Tk10.16 crore it owes to bank and financial institution. In its prospectus in 2018, the firm announced that the loan will be repaid within 12 months of obtaining IPO proceeds. 

Recently the Union Capital Ltd, the creditor company, has given an application to the securities regulator seeking a solution about repayment of loan. 

Referring to a reliable source, the creditor said its client kept the IPO proceeds in the form of FDR instead of paying out loans.  

Moreover, a loan facility has been availed to a company of Aman Group keeping the FDR lien which is a gross violation of trust as well as the rules and regulations.

The company has also failed to use the remaining Tk66.34 crore of the IPO funds for acquisition and installation of machineries. 

Company's share price on the decline 

The company was listed on bourses by the "book building method", with a cut-off price of Tk40 per share for eligible investors and offered Tk36 price per share for general public in 2018.  

The highest price of the company's share reached Tk83 on the second day of its issuance. From that day onwards, the company's share price has been going down. 

On December 17, its share price on the Dhaka Stock Exchange closed at Tk19.70, which is almost 76 percent less than its highest price.

For this reason, general investors are withdrawing their investment from the company.

Low financial performance 

The board of directors of ACFL has recommended 10 percent cash dividend for the financial year ended on June 30, 2019. At the same time, the earning per share of the company was Tk2.11 and the net asset value per share was Tk42.76. 

Over the last year the company's net profit was Tk20.48 crore, which was Tk5.27 crore less than its profit in the previous year.

Now, the ACFL has a reserve and surplus of Tk258.66 crore and its paid-up capital is Tk100.83 crore. The number of its shares is 10.08 crore with a face value of Tk10 each.

Nature of business of ACFL 

Aman Cotton Fibrous Ltd is primarily engaged in manufacturing of high quality cotton yarn in Bangladesh and marketing and selling of product in the domestic market as deemed export. 

The company manufactures 100 percent cotton carded, combed and semi-combed ring spun grey yarn for knitting as well as weaving.

The company went into commercial production on November 1, 2007. The factory is located at Boiragirchala in Sreepur, Gazipur. 

Aman Cotton Fibrous Ltd possesses an installed capacity of producing 6,780 tonnes of cotton yarn per year. All its machinery imported from abroad.