Regulator rejects Bonito Accessories Industries IPO

Highlights

• Company wanted to raise Tk30 crore through IPO
• Revenue was Tk45.62 crore as of June 2019
• Net profit was Tk5.04 crore as of June 2019
• EPS declined by 34.03% in June 2019 compared to 2018
• EPS was Tk1.26 in June 2019

The Bangladesh Securities and Exchange Commission (BSEC) has rejected the initial public offering (IPO) application of Bonito Accessories Industries Limited for violating securities rules.

It wrote to the company and the issue manager concerned on Monday in this regard.

Bonito Accessories Industries is a 100 percent deemed export-oriented garment accessories manufacturer and exporter.

The principal activities of the company include manufacturing, processing, printing, cutting, sealing and assembling of all kinds of button, elastic, hanger, polybag, PVC bag, gum tape, sewing thread, hang tag, bar code, back board, paper board, photo card, label etc.

The company wanted to raise Tk30 crore from the capital market through the fixed price method to acquire machinery, construct a building and repay loans.

Sources said the company violated the rules and overstated in its financial statements so that investors would be more interested in buying its shares.

The company did not buy the land where the building would be constructed using the IPO fund. The regulator thinks this contradicts the use of IPO proceeds and indicates misstatement.

The company has overstated its sales by increasing accounts receivable from 2015-16 to 2018-19. As a result, its future profitability will fall, said the regulator.

The share capital of the company was Tk1 crore in June 2016. As it wanted to go public quickly, its share capital was increased to Tk40 crore within a short period.

But the company did not use the full capital under private offer. 

After that, the company applied to the commission to raise Tk30 crore through initial public offering. In this regard, it failed to submit the pre-IPO supporting documents to the commission.

The company showed that it has a long-term bank loan of Tk2.26 crore and Tk1.66 crore in cash. But it wanted to repay loans of Tk3 crore, which was shown in IPO proceeds. 

The regulator observed that the company overstated its operating income by understating operating expenses. The company showed that the combined amount of its administrative expenses and distribution expenses was Tk1.78 crore against its revenue of Tk45.61 crore as of June 30 last year.

At the same time, the company paid remuneration of Tk2.21 crore to all its directors and officers.

The company's net income ratio was shown as 11.04 percent, which was higher than average in the textile sector.

The regulator also opined that the company's audited financial statements failed to give a true and fair view in all material respects.

Besides, the company will shortly have a significant impact of Covid-19 pandemic on its profitability, which can also put the shareholders at risk.

Earlier, the regulator also rejected the IPO applications of five other companies – Beka Garments and Textile Ltd, JMI Hospital Requisite Manufacturing Ltd, SF Textile Industries, B Brothers Garments Co Ltd, and BD Paints Ltd – for showing inflated revenues and profits.

It was found that these companies had inflated revenues and profits, and overstated inventories and assets in their financial statements.

BMSL Investment Ltd, CAPM Advisory Ltd and EBL Investments Ltd are the issue managers of Bonito Accessories.

The issue manager sources claimed that the commission had recently rejected some IPO applications. But all the issues are being cancelled without prior discussion, or informing the issue manager and company officials concerned.  

If the regulator observes any shortcoming in documentations, it may seek explanations from the companies. But rejection of several issues within a short time will discourage issue managers from bringing new companies to the capital market.