The Bangladesh Securities and Exchange Commission (BSEC) has rejected the Initial Public Offering (IPO) application of BD Paints Limited for violating securities rules.
It wrote to the company and the issue managers concerned on Wednesday in this regard.
The company carried on its business as a local manufacturer of different types of paints. Its principal activities are to manufacture and market different kinds of paints.
BD Paints wanted to raise Tk20 crore from the capital market through the fixed price method.
Sources said the company violated the public issue rules and overstated in its financial statements so that investors would be more interested in buying its shares.
The company's accounts receivable turnover ratio, inventory turnover ratio and asset turnover ratio decreased significantly in five years, from 2014-15 to 2018-19.
It indicates that the company may perform poorly in the near future and its profitability will reduce. Also, it will suffer poor utilisation of its fixed assets while its collection methods will become weak. Moreover, its inventory management will be poor as well.
BD Paint's return on assets ratio and return on equity ratio also dropped significantly during the same five-year period. As a result, the company is not making enough income from the use of its assets.
Besides, the company may be mismanaged and could be reinvesting its earnings in unproductive assets, the BSEC thinks.
The securities regulator also opined that the audited financial statements failed to give a true and fair view of the financial position of the company as of June 30, 2019, as per laws.
The chairman, and all directors, excluding the managing director, of the company transferred shares to individuals on different dates from 2015 to 2019, which is non-compliance of the law.
CAPM Advisory Limited, EBL Investments Limited and MIDAS Investment Limited are the issue managers of the company.
Earlier, the regulator also rejected the IPO applications of three other companies – Beka Garments and Textile Limited, JMI Hospital Requisite Manufacturing Limited and SF Textile Industries – for showing inflated revenues and profits.
It found that these companies had inflated revenues and profits, and overstated inventories and assets in their financial statements.