Can Mamun Rashid buy National Tea right shares as an independent director?

Infographic: TBS

A decision by Mamun Rashid, an independent director of the National Tea Company (NTC), to purchase 2,50,000 of the company's unsubscribed right shares has sparked a controversy among general shareholders and market observers.

The announcement, made on Thursday (28 August), has raised questions about its legality, as market insiders argue that only shareholders listed on the record date are entitled to right shares.

They allege that the company is attempting to offer shares to an independent director at a lower price to complete its stalled capital-raising process, in what appears to be a violation of the law.

A shareholder, requesting anonymity, told TBS that NTC's share price on the Dhaka Stock Exchange (DSE) last Thursday was Tk195.

"If Rashid buys the right shares, he will make an instant profit of around Tk75 per share, amounting to Tk1.89 crore in total. Yet, he is not entitled to these shares," he said.

Speaking to TBS, Mamun Rashid, also a former banker and economist, said: "In 2022, the company initiated a process to sell right shares. However, due to insufficient applications from general investors, it could not be completed.

Despite several attempts, we failed to finish the subscription process, he added.

"As a last resort, based on the opinions of the BSEC and other relevant stakeholders, a few directors, including myself, decided to purchase a large portion of the unsubscribed shares. As part of this, I announced my intention to buy shares. If the regulator approves, I will proceed; if not, I won't. I have merely expressed my intention to buy shares in accordance with the law – nothing more."

BSEC Director and Spokesperson Abul Kalam said, "In the case of a right share issue, only those whose names are listed on the record date are entitled to the shares. However, if a director renounces their entitlement, someone else may take it – but this must be clearly stated in the offer document. In NTC's case, we need to review what exactly happened."

Company Secretary AK Azad Chowdhury said: "We obtained shareholder approval in a special general meeting (EGM) to sell any unsubscribed shares to existing directors if general shareholders did not take them. Based on that, the offer was made to Mamun Rashid. The record date applies only to general shareholders, not to directors."

In the EGM held on 20 October 2022, it was decided that if any right shares remained unsubscribed, the existing directors could subscribe to them proportionally at the set price. If shares still remained unsubscribed, other interested shareholders could purchase them proportionally. However, there was no mention of independent directors in the decision.

The right share issue proceeds were intended to repay bank loans, meet working capital needs, and improve tea gardens and factories.

However, on 17 October last year, the BSEC directed that the funds could not be used until the government's 51% shareholding was confirmed.

Allegations have surfaced that the company has already used Tk29 crore of the proceeds to repay loans, disregarding this directive. The company claims it is waiting for a bank report to confirm the government's shareholding level.

As per a 2022 BSEC directive, all listed companies must have a minimum paid-up capital of Tk30 crore. To meet this requirement, NTC undertook the right share issuance.

Despite several deadline extensions, the sale could not be completed, and the fourth round of applications ended on 13 August this year, leaving several hundred thousand shares unsubscribed.

In April last year, the BSEC approved NTC's plan to issue 2.34 crore right shares at Tk119.53 each (including Tk109.53 premium) to increase its capital.

Of these, the government, ICB, and Sadharan Bima Corporation would receive 1.24 crore shares (at a ratio of 4.43:1), sponsor-directors 13.8 lakh shares (3.21:1), and general shareholders around 96 lakh shares (2.85:1).