Why BSEC rejects B Brothers' fund raising again

The Bangladesh Securities and Exchange Commission (BSEC) has rejected the initial public offering (IPO) of B Brothers Garments Co Ltd for the second time due to multiple regulatory violations and inconsistencies in financial documentation. 

In the last week of October, the commission communicated its decision to the textile manufacturer, which first faced the IPO rejection in 2020, as well as to its issue manager.

B Brothers Garments aimed to raise Tk50 crore from the capital market through the fixed-price method. However, a BSEC official, speaking on condition of anonymity, noted that the new commission has consistently rejected IPO applications during its less than three-month tenure, indicating a stricter approach to compliance.

The rejection stemmed from several regulatory violations by B Brothers Garments, including a failure to submit necessary documents, overstating profits and losses, and exaggerating land development costs. Due to these issues, the BSEC decided not to allow the company to list on the capital market, he also said.

An official from the issue manager, who spoke anonymously, stated that the company plans to reapply in the future, ensuring that its new accounts meet regulatory requirements. 

According to the BSEC, the company's subsidiary, B Brothers Garments Company Unit 2 Limited, was established in January 2020. However, it failed to submit essential financial documents like profit and loss accounts, balance sheets, and cash flow statements for the fiscal years 2019-2020 through 2022-2023. Only land deeds were provided, which violates BSEC regulations.

Premier Bank found that B Brothers Garments overstated Tk53 lakh in its profit statement for the period from July to December 2023, reporting higher export income and incentives than what was actually received. Agrani Bank's verification of Tk25.57 crore in export income and incentives was unclear, raising questions about the accuracy of the company's financial records.

Since 1998, the company has increased its paid-up capital from Tk10 lakh to Tk89.9 crore. However, it failed to submit required evidence, such as copies of pay orders or Account Payee cheques, to verify these transactions. Large sums were also withdrawn on the same day as deposits, suggesting "window dressing."

The company reported Tk32.33 crore as development costs for land worth only Tk0.65 crore in Rupganj, Narayanganj – almost 50 times the land value. This cost lacked proper documentation, raising further suspicion, the commission found. 

B Brothers Garments did not submit tax documents for the fiscal year ending 30 June 2023, as required by BSEC rules. The company is a 100% export-oriented knitwear factory producing items like T-shirts, pants, and tops for major buyers in Europe, North America, and Asia. With a monthly capacity of 2,600,250 pieces, the company is known for its quality and compliance, winning numerous awards.

In its first application to the BSEC, the firm violated certain securities laws, resulting in the application being rejected in August 2020. The commission stated that the company deposited its share money in several bank accounts instead of a separate account, violating the consent letter condition. Additionally, the company failed to submit the approved layout of the building to be constructed with IPO funds.

The commission observed that the "Text Line" and "Sportswear" units have contributed 67% of the company's total revenue. If any orders are canceled, the company may face difficulties in the future. 

Sources also indicated that the company's audited financial statement as of June 30, 2016, was signed by only one director, which is a violation of the Companies Act 1994. The commission believes the company is heavily dependent on bank loans, which may result in a cash flow crisis as well.