FRC finds Asiatic Laboratories overstated asset value 

Infographic: TBS

The Financial Reporting Council (FRC) has found that Asiatic Laboratories overstated the value of its properties, a move that market insiders say the drugmaker made in an attempt to obtain better prices for its shares.

Officials at the council said it has recently submitted its findings to the Bangladesh Securities and Exchange Commission (BSEC) on the prospectus and audited financial statements of the pharmaceutics company.

The FRC carried out the review after the market regulator halted the public subscription for its initial public offering (IPO) in January this year, following complaints the commission had received from anonymous sources.

According to the company's prospectus, its asset value jumped over 119% in five fiscal years between 2016-17 and 2020-21, but the asset value soared more than 73% year-on-year in FY21.

Shafiq Basak & Co Chartered Accountant and Ashraf Uddin & Co Chartered Accountant scrutinised the valuation of the assets and financial statements. 

FRC Chairman Hamid Ullah Bhuiyan told The Business Standard, "We have found several irregularities in the company's assets and financials. The company has overstated its properties to show higher net asset value (NAV)."

"And we have presented these irregularities to the stock market regulator," he added.

Asiatic Laboratories Company Secretary Istiaq Ahmed declined to comment in this regard. 

In its review, the FRC also found mismatches in the company's non-current asset valuation, revenue and profit, land ownership, share money deposits and audited financial statements.

Professor Shibli Rubayat-Ul-Islam, chairman of the BSEC, told TBS, "The company has been asked to submit the necessary documents in favour of its asset valuation. It has already provided some papers. We are looking into it."

"If all the documents are okay, the company's IPO suspension will be withdrawn. We will prioritise the interest of the investors," he added.  

In August last year, the BSEC allowed the company to hold a bidding to determine cut off prices for its shares to raise Tk95 crore through the book building method from the capital market.

The company would use the fund for acquisition and installation of new plant and machinery, construction of factory building for a new unit, partial repayment of bank loan and IPO expenses.

As per prospectus, it would use the funds mainly to begin anticancer drug production. It would spend Tk58.05 crore on acquisition and installation of machinery, Tk6.26 crore on factory construction, and Tk28 crore on repayment of bank loans.

Through a bidding from 10-13 October, the cut-off price of each share was fixed at Tk50. According to the terms of the commission, general investors will get shares at Tk20 each.

According to the Dhaka Stock Exchange (DSE), 161 investors wanted to buy the shares at Tk50 each.

On 15 January, the market regulator halted the subscription for general investors just a day before its start. 

Due to the suspension, the money of high-net worth investors is stuck for five months.

BSEC Spokesperson Rezaul Karim told TBS, "The inquiry committee formed by the commission has submitted its report on Asiatic Laboratories. The commission is yet to make any decision regarding the IPO."

Earlier, when the subscription was halted, he said, "The commission has received some complaints about its fixed assets, and also got complaints about ownership disputes. As a result, the commission has decided to re-examine the fixed assets, and complaints."

According to the prospectus, the price of properties increased by Tk193 crore to Tk490.74 crore in January 2021 in a span of just one year.

During the valuation, the value of land and land development increased to Tk308.56 crore, building and other construction Tk93.42 crore and plant and machinery to Tk72.74 crore, which was Tk126.96 crore, Tk86.52 crore and Tk68.31 crore, respectively, in June 2020.

The NAV per share with revaluation stood at Tk56.61, without revaluation it was Tk35.48. 

According to the prospectus, the non-current asset value of the company has increased by about Tk200 crore year-on-year to Tk523.31 crore in June 2021.

Non-current assets are a company's long-term investments that have a useful life of more than one year. Non-current assets cannot be converted to cash easily. They are required for the long-term needs of a business and include things like land and heavy equipment.

Sheikh Zahidul Islam, FCA, partner of Shafiq Basak & Co told TBS, "The valuation of the land has been done in accordance with the accounting standards. We have done a field survey and discussed with local and industrialists to determine its current market value. There is no scope for over-valuation here."

Asiatic Laboratories was incorporated as a private limited company in July 1970, and started commercial production in 1998. 

Asiatic is engaged in the production and marketing of biological, non-biological, and sterile products such as tablets, capsules, syrups, creams, eye products, injections, and more.

At present, Asiatic Laboratories produces 6 million tablets, 5 million capsules, 2 million injections, 1.5 million tube creams, and 1.6 million bottles of syrup every year.

The company's annual revenues in fiscal 2020-21 grew to Tk145 crore from Tk119.6 crore five years ago. 

In FY21, the net profit of the company increased to Tk32.05 crore, which was Tk24.24 crore in the previous fiscal year.