Aramit Cement Ltd has landed in trouble over illegal lending to its associate companies.
According to sources in Aramit, in the last five years, the business enterprise has disbursed a Tk77.21 crore loan to its six associates without charging any interest.
The listed company is bearing the interest expense of the loan. As a result, investors have been deprived of their expected returns.
According to a directive of the Bangladesh Securities & Exchange Commission (BSEC), an Issuer Company cannot provide loans, guarantees or securities to its subsidiaries without the approval of its Board of Directors and shareholders at an Annual General Meeting (AGM). However, the company did so, thereby violating the regulatory conditions.
During the last three quarters of the last fiscal, according to the Dhaka Stock Exchange report, the company has paid an interest expense (at multiple rates) amounting to Tk29.81 crore against its total outstanding of Tk432.84 crore.
Prof Abu Ahmed, a capital market analyst, said a listed company cannot be non-compliant if independent directors play a vital role in the board meeting of the company. Independent directors occasionally fail to protect the interest of investors of listed companies.
He said investors are unaware of exactly what they are approving during the AGM, and listed companies take advantage of this.
The regulator can step up its monitoring of listed companies to minimize non-compliance, suggested the analyst.
In this regard, Managing Director of IDLC Investments, Md Moniruzaman said such lending practices go directly against the interest of minority shareholders.
He said that appropriate regulation and enforcement will prevent sponsors from favouring its associate companies in any way.
"It's good that BSEC is seriously looking into this decades-old malpractice."
Aramit Cement Ltd's Company Secretary, Syed Kamruzzaman, admitted that the business entity had turned non-compliant.
"The decision was taken by management of both companies. Going forward, we intend to follow the regulator's directives," he added.
Kamruzzaman also said they would like to arrange an emergency board meeting as soon as possible.
According to BSEC sources, Aramit would have been able to pay at least 20% cash dividend to all of its shareholders if it had charged only 10% interest on the fund disbursed to its subsidiaries.
The regulator also instructed the defaulted company to recover the non-interest-bearing loan from its associate business entities at 9% interest within 15 days.
Aramit did not recommend any dividend for its shareholders for the year ending 30 June 2020. During the period, the net loss of the company stood at Tk23.24 crore. Its per-share loss was Tk6.86, while the net asset value was Tk25.63.
In July-September period this year, the company's revenue stood at Tk41.55 crore, compared to Tk44.34 crore during the same period a year ago. Its net loss was Tk4.48 crore and loss per share was Tk1.32.
Aramit Cement Limited is a sister concern of Aramit Group. The company was incorporated in August 1995 and obtained a listing in stock exchanges in 1998.
The paid-up capital of the company is Tk33.88 crore. Sponsors and directors retain 47.14%, institutions hold 14.83% and general investors hold 38.03% of the company.
As of Sunday, the closing trading price of the company at DSE was Tk15.