Emerald Oil to issue shares for new sponsors at one-third of market value 

Infographic: TBS

Emerald Oil Industries has decided to issue fresh shares for its new sponsor-directors at a face value of Tk10 each against their investment at a time when the shares are traded in the secondary market at more than three times higher rates.

Market insiders believe the move will deprive shareholders, despite the fact that the new shares will remain locked in for a certain period.

The decision to issue new shares was already approved at an extra-ordinary general meeting (EGM) on Sunday.

As per the decision, Emerald Oil Industries will issue 3.62 crore new shares, which are almost half of the existing shares, in favour of Minori Bangladesh, allowing the new investors to secure a majority stake in the company's board.

Emerald Oil Industries will now apply to the stock market regulator, seeking approval to issue the fresh shares.

The lock-in period of new shares will be determined by the Bangladesh Securities and Exchange Commission (BSEC).

On Wednesday, each of Emerald Oil Industries' shares was traded at Tk32.20.

In 2021, Minori Bangladesh, a subsidiary of Japanese farming company Minori Co Limited, got BSEC nod to bring the company back into production by investing more than Tk40 crore.

The publicly listed firm, producer of the most forgotten rice-bran oil Spondon, was out of production for five years as its original owners fled for a loan scam.

Stakeholders are sceptical of the lock-in period for newly issued shares, citing a case in the country where sponsor-directors sold significant holdings with the market regulator's blessing.

In 2021, Paper Processing and Packaging moved from the over-the-counter (OTC) market to the main board of the stock exchanges.

The company was then subjected to the condition that its sponsor-directors not sell their holdings for three years.

But in the name of loan repayment, the BSEC allowed its sponsor-directors to sell shares.

Then, the sponsor-directors of the company sold shares for Tk15 crore.

Afzal Hossain, managing director of Emerald Oil Industries, said, "The company has small resources. The net asset value is also negative. As a result, debt is much higher than assets. So it is logical to issue shares at Tk10, for which the shareholders have given their consent. Now an application will be filed with the commission for its final approval.

"The company had nothing. The existing machines have been greatly damaged. As a result, the company has returned to production with repairs and the addition of new machines."

Why the issuance of new shares?

Although original sponsors are supposed to get shares while a company is brought back to production, it did not happen in the case of Emerald Oil.

Company sources said Minori Bangladesh has invested around Tk31 crore to revive the defunct company after getting approval from the securities market regulator.

Minori Bangladesh bought about 46.66 lakh shares from the secondary market, which is 7.81% of the total stake in Emerald Oil.

The main sponsor of the company, Syed Hasibul Gani Galib, holds 21.41% shares, of which about 18% is mortgaged to banks, according to sources. The company has a loan of around Tk100 crore with Bank Asia and BASIC Bank, which has been defaulted on for a long time.

Banks are not willing to return the mortgaged shares of the original sponsor due to non-payment of the loan. As a result, Minori Bangladesh is not getting the shares of Syed Hasibul Gani Galib.

Emerald Oil Industries resumed production in January 2022.  

The company could not go into production at full capacity due to gas shortage. It is now producing de-oiled rice bran (Dorb) along with Spondon brand oil.

At the EGM, Emerald Oil Managing Director Afzal Hossain said, "As the company stopped production in 2016, all the facilities became unsafe. After failing to repay nearly Tk100 crore in bank loans, the company became a defaulter.

"We did not find evidence of the accounts receivable shown in the 2016 audit report. Also, no bank balance was found." 

Regarding the current situation of the company, he said, "Gas connection has been restored after paying the outstanding bill of Tk2.62 crore. LPG stations and diesel burners have been installed as alternatives due to a gas shortage at the national level.

"Because the cost of LPG and diesel burners is high, the work of setting up a husk-fired boiler and a 750 kV power station is going on. Minori has invested Tk31.56 crore so far, if required, it will invest more to accelerate the company."

Incorporated in 2008, Emerald Oil Industries Ltd began production of its Spondon-branded rice-bran oil in 2011 and entered the bourses in 2014.

The company raised Tk20 crore by issuing two crore general shares at a face value of Tk10.

However, as soon as the founder's loan scams became public, it melted down in both its business and the stock market, and it has been inactive since 2017.