Malek Spinning to issue a Tk290cr bond

Infographic: TBS

Malek Spinning Mills Limited, a concern of New Asia Group, has decided to raise Tk290 crore from the capital market by issuing a bond for business expansion and loan repayment.

As per the investment plan, the company will build a factory and install new machines by investing Tk213 crore to manufacture high-valued yarn to meet buyers' requirements.

The new project will create value addition with the improvement of product quality which will enable the company to sell its products at higher prices and retain better margins.

The board of the spinning miller, which is listed on the Dhaka Stock Exchange (DSE), has chosen the debt instrument to avail long-term financing. Usually, banks and non-bank financial institutions cannot disburse loans for the long term, said a senior officer of the company.

A Matin Chowdhury, managing director at Malek Spinning, told The Business Standard that the company took the new project in June last year to double its production capacity.

"Our yarn has a lot of demand from buyers because we import cotton from America and make yarn using modern technologies. We do not charge a premium for this," he added.

Along with the advancement of technology worldwide, the quality of yarn has also changed, said the managing director. "So, we are investing heavily in producing better yarn."

"And for this, we need to avail long-term financing because the current business situation is not suitable for a bank loan. That is why we will raise a fund by issuing zero coupon bonds," he added.

But the bond tenure and coupon rate have not been determined yet. It will be finalised at the soonest possible time, he said. "Then, we will apply to the Bangladesh Securities and Exchange Commission for approval."

A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but trades at a deep discount instead, rendering a profit at maturity, when the bond is redeemed for its full face value.

The company also decided to purchase 55 bighas of land at a cost of Tk55 crore in Mymensingh to build the new factory.

The managing director said the project cost will be met from the bond and the company's own sources.

Malek Spinning produces export-oriented knit yarn. The existing installed production capacity of the company is 1.26 crore kg yarn per annum with 63,624 spindles. The new project will boost the production capacity by 60%.

Meanwhile, Malek Spinning has three subsidiary companies which are engaged in the textile and garment business. The board of Malek Spinning also decided to expand JM Fabrics Limited's production capacity. That is why it will purchase land by investing Tk47.70 crore in Gazipur under the JM Fabrics. The investment amount will be provided by JM Fabrics.

A Matin Chowdhury said, "We will build a textile and garments factory on that land. But no project plan has been taken yet. Currently, we are working on it."

Besides, the company has recovered the insurance claim of Tk21.12 crore against a fire incident at its subsidiary company Salek Textile's factory. Malek Spinning informed that the amount will be used for repaying the term loan.

In fiscal 2020-21, Malek Spinning had paid a 10% cash dividend to its shareholders. In that year, its revenue grew 15% to Tk297.62 crore, and its consolidated revenue jumped 54% to Tk1,503.97 crore.

At the end of the last fiscal, its consolidated net profit was Tk65 crore and earnings per share stood (EPS) at Tk3.36.

At the end of the first three-quarters of FY22, its consolidated EPS stood at Tk2.91, which was 47% higher compared to the same period previous year.

Its share price closed at Tk28.4 per share on the DSE on Thursday.