Esquire Knit Composite Ltd (EKCL) has been utilising its initial public offering (IPO) fund of Tk100 crore out of Tk150 crore through Pinnacle Construction Management Ltd, a private company, without disclosure.
As per Bangladesh Securities and Exchange Commission (BSEC) condition, if any listed company makes any transaction with its related party, then it must be disclosed, which EKCL failed to oblige.
EKCL has endangered the interest of the investors by utilising the IPO fund without disclosing the name of the company, said the BSEC sources.
But EKCL claimed that the utilisation is under the definition of related party disclosure, a transaction that takes place between two parties who hold a pre-existing connection prior to the transaction, as per International Accounting Standard.
The BSEC sources said EKCL has violated the terms of "Arm's Length Transaction" because the company's impartiality is questionable here.
As per Arm's Length Transaction, in the interest of fairness, both parties (in this case EKCL and Pinnacle Construction) usually have equal access to information related to the deal.
EKCL got IPO approval on September 27, 2018 to collect Tk150 crore from the stock market. The company received IPO proceeds in March 2019.
Of the total amount, the company allocated Tk100.42 crore for building and construction purposes.
Pinnacle Construction was established in August 2018. Its chairman, Ayesha Habib and its managing director, Tamanna Habib, are both daughters of Md Ehsanul Habib, managing director of EKCL.
Pinnacle Constructions commenced its business in August 2018, the month it was established, said an official of EKCL.
Mijanur Rahman, the project manager of EKCL, said, "Management is working as per the law to complete the construction."
"Though Pinnacle Construction Management is an unknown company, its sub-contractor companies are well known," he added.
He said the disclosure will be announced in the annual report.
BSEC's Executive Director & Spokesman Md Saifur Rahman said, "The stock exchange is primarily responsible for the supervision of the fund utilisation of a company. The BSEC has already observed the matter and will take action if there are any anomalies."
EKCL utilised Tk47.88 crore as of November 30, 2019, out of its committed expenditures.
Since the initiation of the construction in August 2018, the company utilised Tk41.44 crore through Pinnacle Construction for building and construction purposes till November 30, 2019.
Earlier, on October 31, 2019, the company paid Tk54.09 crore to Pinnacle Construction in advance for the construction.
EKCL's share price declines
EKCL was listed on both the bourses with a cut-off price of Tk45.508 per share for eligible investors, and offered 10 percent less for the public on April 09, 2019.
The company's shares sold highest at Tk51.10 per share on May 5, 2019 and has been going down since then.
EKCL's share price closed at Tk28.20, almost 45 percent down from its highest price, on December 31, 2019, which led the investors to withdraw their investments from the stock.
EKCL declared 15 percent cash dividend for its investors on June 30, 2019.
The earnings per share of the company was Tk3.37 and the net asset value per share was Tk50.49.
Last year the company's net profit was Tk38.36 crore, up from Tk34.40 crore a year earlier.
Currently, EKCL has a reserve and surplus of Tk392.71 crore and its paid-up capital is Tk134.90 crore. Its number of shares is 13.49 crore with a face value of Tk10 each.
The company has a short-term loan of Tk76.86 crore and a long-term loan of Tk46.04 crore.