BSEC seeks explanations on Keya Cosmetics' financial statements

The stock market regulator has sought some documents and explanations from Keya Cosmetics as it suspected that the company's financial statements were misleading investors.

The Bangladesh Securities and Exchange Commission (BSEC) has recently sent a letter to the company's managing director to submit an explanation and documents within seven days.

The letter asked the company to submit VAT return papers and export certificates for the 2017-18, 2018-19 and 2019-20 fiscal years.

BSEC also sought a clear explanation of the amount of the company's trade receivables. Besides, a proper inventory of 2018, 2019 and 2020 has been sought.

The regulator wants to know about suspicious debts from 2018 to 2020. Besides, it has demanded a clear explanation of the suspicious debt reserves.

In addition, the commission has sought an explanation of the assets, liabilities and capital of Keya Spinning, Keya Cotton and Keya Knit Composite, three other companies under the holding of Keya Cosmetics Limited.

Meanwhile, in April 2021, Pubali Bank published an advertisement, inviting tenders for the planned auction of nearly 850 decimals of the land of Keya Group's factory complex along with the factory infrastructure and also the mortgaged luxury apartment complex owned by the sponsor-directors in the capital's Gulshan area.

The auction schedule included assets owned by Keya Group's flagship company Keya Cosmetics Ltd, Keya Yarn Mills Ltd and its founder Abdul Khalek Pathan and his family members.

With uncharged interests added, Keya Group and its sponsor-directors owe more than Tk800 crore to Pubali Bank, according to the bank's advertisement for auction.

The company later paid the loan instalment and the Pubali Bank withdrew the notice of auction, said a senior official of Keya Cosmetics.

Keya Group is an example of how a business can grow fast in Bangladesh and fall at an even faster pace.

Abdul Khalek Pathan, a professional driver turned entrepreneur, founded his detergent and soap business in the 1990s, which grew to the top tier in the local market alongside achieving export trophies in the early 2000s when the business got listed on the stock market.

It expanded to the export-oriented textile and apparel business seriously and also achieved success there.

But, aggressive financial planning, misreporting of assets and liabilities, and the amalgamation of troubled assets with the listed company altogether resulted in the fall of the once-a-glorious entity.

Keya Cosmetics Ltd, which owns the group's soaps and detergent business alongside most of the textile units, had absorbed an asset meltdown in fiscal 2018-19 since the accounting regulator ordered the company to write off fake assets amounting to over Tk1,000 crore.

Due to a one-off annual loss bigger than its paid-up capital, Keya Cosmetics' net asset value came down to near zero, which saw a slight improvement with some profits posted for fiscal 2019-20. Thereafter, the company did not publish any more financial statements. 

Keya's shares closed at Tk7.70 each on Monday at the Dhaka Stock Exchange (DSE).

According to the DSE, the sponsors and directors hold 46.27% shares in the company, whereas institutional investors have 8.70% and the general investors have 45.03% shares as of February this year.