Index Agro to use 71% of IPO funds for loan repayment

Index Agro Industries Ltd — a manufacturer of poultry feed, fish feed, and a producer of day-old chicks, has decided to use 71% of its initial public offering (IPO) funds raised, to repay short-term loans it took from various banks for business expansion.

When the money was much needed for its expansion project, the company applied for an IPO to the stock market regulator to raise funds.

But due to a delay of more than four years in getting IPO approval from the Bangladesh Securities and Exchange Commission (BSEC), the company took out short-term bank loans in order to complete its expansion project.

The company applied for an IPO on 27 October 2016 and got consent from the BSEC only on 20 January 2021.

In the meantime, the company had started to set up the required machinery and equipment, and started building & civil construction work for the expansion project, using bank borrowings and partially its own sources.

Now, it has almost completed its expansion work.

As it did not get the money on time, Index Agro is now revising its IPO utilisation plan to repay the loan.

As per the rules, usually a company can use only one-third of  IPO funds raised to repay loans.

But now, Index Agro plans to use more than two-thirds of the IPO funds, amounting to Tk35.49 crore, to repay short-term loans although this was not initially part of its IPO plan.

To revise the proceedings, on Thursday, the Index Agro board of directors approved the new fund usage plan for repaying loans.

Now the company will apply to the BSEC for approval in this regard.

Abu Jafar Ali, company secretary of Index Agro told The Business Standard, "The revised plan would help the company make a good profit as it will partially repay its short-term loans, which will help net profit."

"The company decided to revise its IPO utilisation plan because it was not getting any benefits from the funds with them lying idle in the bank," he added.

Earlier, Index Agro Industries also raised Tk50 crore from the stock market under the book-building method.

Of that, Tk15.54 crore was allotted for building & civil construction, and Tk29.96 crore went towards machinery and equipment acquisition.

According to the company's latest annual report, as of June 2021, Index Agro Industries has Tk3.55 crore in long-term loans, and Tk189.85 crore in short-term loans from Islami Bank, Standard Chartered Bank, and Prime Bank.

One year ago, its total short-term loan was Tk83.47 crore, which increased due to the loans for their expansion.