The Zeal Bangla paradox

The state-owned company, Zeal Bangla Sugar Mill, is a story of paradox. 

The company, which has been incurring losses for around three decades, has once again recorded a jump in its stock price by 33% in the last three days.

The latest unusual surge should not be taken as a big surprise as the company has a track record of demonstrating winter warmth – a 562% jump in November last year.

In spite of its poor performance in business, an unprecedented record in its bag was posting a 1,300% jump in 1996 – before the stock market crash.

Market insiders blamed price manipulation due to a small volume of shares being behind the artificial crisis.    

Unusual price movement prompted the market regulator to suspend the trading of Zeal Bangla stocks for a month last year.

Zeal Bangla is one of the five sugar mills established in East Bengal during the Pakistan period.

At the time, Zeal Bangla earned good profits by producing sugar to meet demand.

Later, with the rise of the private sector in sugar and raw material imports, Zeal Bangla suffered losses in the mid-nineties.

Basically, Zeal Bangla has been in losses due to corruption, lack of raw materials and inadequate production despite its high capacity to turn out goods.

Sugar production, after buying and threshing sugarcane from farmers, is expensive but the sales prices have been low.

During the peak season, sugar is produced three to four months a year and for the rest of the year, production remains suspended.

The company cultivates sugarcane on its own as well as collects sugarcane from farmers.

But, as the collection is not enough, the mill remains closed for a long period.

Even if there is no work, the company's cost goes up because of seasonal workers being made permanent under pressure from labour leaders, which eventually exacerbates the crisis in Zeal Bangla.

Zeal Bangla was established in 1958 on 150.83 acres of land in Dewanganj, Jamalpur.

At present, it is being operated under the Bangladesh Sugar and Food Industries Corporation (BSFIC).

Regarding the losses, Sanat Kumar Saha, the immediate past chairman of BSFIC, said, "Sugar production from sugarcane threshing is expensive, but the selling price is much lower. The loss is due to extra manpower and low selling price of sugar."

When the capital market was introduced after the liberation of the country, Zeal Bangla was enlisted as the eighth government company in 1988.

Due to good profits, it evoked a big response at the time but eventually could not hold on to the pace.

The company declined into losses five years after its enrollment on the stock market.

As sugar import increased, Zeal Bangla was included in the list of loss-making companies.

During the 1996 stock bubble, the share price of Zeal Bangla skyrocketed. On July 3 of that year, the share price was Tk5.5 each and increased by 1,330% in four months and rose to Tk78.63 on 17 November. 

In July 2020, the share price of Zeal Bangla rose suddenly again. The price of each share rose to Tk209 on 3 September from Tk31 on 9 July. 

Due to unusual transactions and price movement of the company's shares, the Bangladesh Securities and Exchange Commission (BSEC) suspended its share trading from September 15 to October 29.

The share price has been rising again since 30 December.

In three working days, the company's share price has risen by 33% to Tk193.6.

Market insiders alleged that the company's share price was raised by creating an artificial crisis.

Rakibur Rahman, director of the Dhaka Stock Exchange (DSE), told TBS, "An artificial crisis is being created as the company's shares are low. Investors should invest their money knowingly."

Zeal Bangla has to spend Tk150-156 to produce a kg of sugar from sugarcane, but its retail price is around Tk60 only. 

Some 16.5 kg of sugarcane is required to produce one kg of sugar. The price of the sugarcane is more than Tk60.

The cost of the collection of sugarcane, including transportation, threshing and marketing, is about Tk100.

Zeal Bangla is not able to pay any dividend to its shareholders due to the losses it incurs.

It paid a 20-25% dividend for years after it got listed on the stock market.

Mostaque Ahmed Sadeque, managing director of Investment Promotion Services Limited, was a shareholder director of the Zeal Bangla in the 1990s.

"The company was very good. Investors received 20-25% dividend for years after it got listed on the stock market," he said. 

"Due to some decisions of the government, the demands of workers, and the import of sugar, the condition of Zeal Bangla got worse."

Turning into a loss-making company 

It got listed on the DSE in June 1988 with a paid-up capital of Tk6 crore and a face value of Tk10. Institutional and general investors hold 49% of the company's 60 lakh shares.

As of March 1988, the profit was Tk1.71 crore and in 1990, the company had earned a profit of Tk3.26 crore.

In fiscal 1992-1993, it incurred a loss of Tk5.56 crore for the first time. This situation did not improve in the subsequent 27 years.

In fiscal 2019-2020, Zeal Bangla reported a loss of Tk56.21 crore.

In the first quarter of July-September of the current financial year, the company incurred a loss of Tk11.61 crore.

The sugar market size 

According to the BSFIC, the demand for sugar in the country is 18-19 lakh tonnes. 

The 15 state-owned mills produce 70,000 tonnes of sugar, which quantity is able to meet about 4% of the total demand. The remaining 96% of sugar is imported.

The private sector companies import raw sugar from abroad and produce sugar by refining.

Speaking to The Business Standard when he was chairman of BSFIC, Sanat Kumar Saha, said, "Private sector entrepreneurs are now able to refine 30 lakh tonnes of sugar a year, which is more than the total demand.

"When they took permission, the companies had promised to export 50% of their total production. But so far they have not been able to export even a single kilogram of sugar."