The sponsors, who are Singapore and Taiwan nationals, have reached out to several institutional investors offering to sell their stake
Sponsor-directors of the debt-burdened Ring Shine Textiles, all hailing from either Singapore or Taiwan, are frantically trying to sell their 31.5 per cent stake and get out of Bangladesh, in what can be viewed as quite the blow to the country as it actively courts foreign investors to accomplish its growth ambitions.
The sponsors have reached out to several institutional investors offering to sell their stake, Dhaka Tribune learnt from the parties who were approached.
The revelation comes after the company last week announced the closure of its factory in Savar’s Dhaka Export Processing Zone for one more month until December 24 for want of orders amid the global coronavirus pandemic, even though its listed counterparts are all running their plants in full steam.
Despite the glum business outlook, a few buyers showed interest in acquiring a stake in the company, said high officials of two of the banks Ring Shine owes a substantial amount to.
However, striking any deal has proven to be a difficult task as the sponsor-directors currently hold approximately one-third of the company while private placement holders make up around a quarter of the ownership.
Ring Shine sold 26 per cent of its stake in private placement -- which is a sale of shares or bonds to pre-selected investors and institutions rather than on the open market at a mutually agreed rate -- before its initial public offering (IPO).
The 26 per cent tied up with pre-IPO placement holders is proving to be a thorn, according to bankers.
Pre-IPO placement holders are subject to a lock-in period of one year from the debut date of the stock, as per the rules prevailing when Ring Shine’s initial public offering prospectus was approved.
Ring Shine made its stock market debut on December 12 last year, meaning the pre-IPO placement holders would be free to offload their stakes in less than two weeks.
The institutional buyers, who would get controlling stakes but not the majority, are fearing that a rival party might snap up the placement holders’ shares, get a seat at the table and play a spoilsport to their business plans.
At the same time, flooding the market with so many shares would push the stock’s price further down.
Consequently, the sponsor-directors have requested the Bangladesh Securities and Exchange Commission through their banker to extend the lock-in period of the pre-IPO placement holders to two years to help strike a deal with an institutional buyer.
“The current board members want to sell their shares. If they leave our country, we want good entrepreneurs who can lead the company,” the banker said.
Contacted, BSEC Chairman Shibli Rubayat-Ul-Islam acknowledged receiving two letters, including one from the Bangladesh Export Processing Zones Authority (BEPZA), on this matter.
“The shares have already been blocked indefinitely. On the other hand, we are looking into the whole matter,” Islam told Dhaka Tribune on Monday.
BEPZA is looking into the issue of managing the sale of shares, he said.
“However, the current board of the company has held several meetings with us in this regard. If they need any cooperation in this regard, we will do as much as we need to do legally,” he added.
Ashraf Ali, company secretary of Ring Shine Textile, declined to comment on the matter.
“The financial condition of the company is very bad,” said one of the bankers, whose instituition is owed upwards of Tk 350 crore.
In its 2019-20 financial year report, Ring Shine reported a negative cash flow per share.
Cash flow per share is calculated as a ratio, indicating the amount of cash a business generates based on a company’s net income with the costs of depreciation and amortisation added back.
Since the expenses related to depreciation and amortisation are not cash expenses, adding them back keeps the company’s cash flow numbers from being artificially deflated.
Because cash flow per share represents the net cash a company produces, some financial analysts view it as a more accurate measurement of a company's financial health.
Ring Shine posted a negative net operating cash flow per share of Tk 0.76 for the 2019-20 financial year that wrapped up on June 30, in contrast to Tk 1.83 a year earlier.
The company logged in a profit of about Tk 14.5 crore for the year that ended on June 30, down 70.5 per cent year-on-year. It announced a 1 per cent cash and 1 per cent stock dividend for the 2019-20 financial year.
The announcement though would be of little consolation to its retail investors, who have been hit by one bad news after another ever since the company got listed, and are now completely in the dark about what is going on with the textile manufacturer.
For instance, on November 15, Ring Shine announced the postponement of the board meeting to review the financial statement for the first quarter for its 2020-21 financial year for no specific reason. A new date was not announced either.
Earlier in January, a month after it made its stock market debut, rumours surfaced that Ring Shine’s foreign staff, including its directors, were abandoning their posts and leaving the country for good. The exit en masse had been prompted by either loan defaults or an anonymous death threat issued to the managing director.
This precipitated the slide of the stock, which made its debut just at Tk 15 and at one point went below its face value of Tk 10.
Then later in January, the securities regulator asked the Bangladesh Bank to freeze the IPO account of the textile maker citing irregular cash disbursement.
The company had raised Tk 150 crore from the public for purchasing machinery and repayment of bank loans and instantly withdrew Tk 50 crore from the account to pay off loans taken from different banks before the public share issuance.
Then in February, a key sponsor offloaded holding: Universe Knitting Garments, whose owner Sung Wey Min is the sponsor and MD of Ring Shine Textile, sold 36.9 lakh shares.
This only led to an increase in the supply of Ring Shine shares in the market, forcing the stock price to plummet even more.
According to market analysts, when a company's sponsor sells his or her shares just after being listed, it gives a bad signal to general shareholders.
A sponsor can sell his or her shares as they wish but when they do so under a stock's face value, then it raises questions about the company's potential, they added.
When Universe Knitting offloaded the Ring Shine shares, the stock price was languishing at around Tk 8, which is less than the face value.
Shares of Ring Shine closed at Tk 6.4 yesterday -- which is the same as the previous day -- down 36 per cent since its debut.
As per its 2019-20 annual report, the company has failed to utilise the IPO funds for the main reason that it got the amount for: for the acquisition of machinery and equipment.
It has so far spent Tk 53.5 crore: Tk 50 crore to pay off the bank loans and Tk 3.5 crore for IPO expenses.
Ring Shine’s issue managers, AFC Capital and CAPM Advisory, declined to comment for the report.