A Miracle accounting

Miracle Industries Ltd, a publicly listed joint venture between the Bangladesh Chemical Industries Corporation (BCIC) and private investors, faces allegations of deceptive business practices, raising concerns among shareholders.

A recent inspection by the Bangladesh Securities and Exchange Commission (BSEC) found that a private firm, Techno Economy Ltd, was operating within Miracle's Sreepur factory, using its machinery and space to handle production, sales, procurement, and exports. Miracle is bearing all the expenses, including salaries, utility bills, and administrative costs for Techno.

Under BSEC rules, a listed company must issue a prior public disclosure before allowing a non-listed company to use its office space or factory.

"They [Techno] are using the public company's resources for their own operational benefits," the BSEC inspection report says.

The inspection team submitted the report to the commission last week. The Business Standard obtained a copy of that report.

The report recommends taking strict punitive measures against those responsible and conducting a special audit of Miracle Industries' business activities in the past 10 years to uncover any irregularities.

Additionally, the report suggests forming a separate inquiry committee to investigate Miracle Industries' share trading activities due to the recent abnormal rise in its share prices.

However, after the BSEC investigation findings were released, Miracle Industries issued a public disclosure on 26 October stating that the company had started processing tapes and fabrics for Techno Economy Ltd in its factory on 1 October, with the approval of its board of directors.

According to BSEC rules, Miracle was required to issue this disclosure before starting processing work. 

Mohammad Rezaul Karim, executive director and spokesperson of the BSEC, told The Business Standard, "After an investigation report is submitted, we hold a hearing to determine whether any laws have been broken. Based on the hearing, the commission takes action."

The BSEC spokesperson also said that if someone is found to have broken the law, the commission can impose a fine of at least Tk1,00,000 and up to an unlimited amount, depending on the severity of the violation and the amount of money lost by investors.

Founded in 1995 as a joint venture between BCIC and four entrepreneurs, Miracle Industries manufactures a range of bags for cement, fertiliser, salt, feed, sugar, food grains, and chemicals. It operates two manufacturing units in Sreepur and Gazipur, one for the local market and one for exports.

Remarkably, non-listed Techno's business operations closely resemble Miracle's business, with Techno's factory located next to Miracle's boundaries.

There has been a change in Miracle's ownership this year. The four private stakeholders of Miracle Industries sold their entire shares (10%) in Miracle to a company named Mehmood Equities. 

Interestingly, Mehmood Equities, a company that now owns 10% of Miracle Industries, also owns a 51% stake in Techno Economy, which specialises in producing threads and polypropylene (PP) bags.

When asked about the irregularities in business practices, Md Omar Faruk, company secretary of Miracle Industries, told TBS, "After the change in ownership, Miracle participated in several tenders to secure work but was unsuccessful. The Techno Economy factory is next to the Miracle factory and Techno is now operating at the Miracle factory through a subcontractor agreement."

"Miracle's factory was closed for a long time, but it has now resumed operations on a small scale to produce goods for Techno. Since the two companies are owned by the same entity [Mehmood Equities], we are working together," he said.

"Miracle will receive a certain amount of compensation for allowing Techno Economy to use its machinery and factory premises," Omar Faruk added.

Miracle's ownership change

The BCIC holds a 20% stake in Miracle Industries. The four shareholders used to hold a 10% stake, and the rest of the shares are held by the general shareholders. 

The four entrepreneurs – Asadur Rahman Mirza, Md Wahiduzzaman Chowdhury and Rafiqul Murshed and Pavarton Securities (owned by one of three entrepreneurs) had sold their entire 10% stake to Mehmood Equities under a negotiated deal in July 2023.

After selling out the entire holdings in Miracle Industries, they resigned from the board. The share transfer deal was completed in July this year with the approval of the BSEC.

Mehmood Equities then nominated its chairman AKM Sahabub Alam as managing director of Miracle, and Showkat Mehmood and Nayan Mehmood as directors of the company.

At present, Miracle Industries' board has seven directors including a chairman nominated by the BCIC, TSP Complex Limited and Chhatak Cement Company as they hold 5.28%, 8.84% and 5.88% shares, respectively.

It was a profitable company till the fiscal year 2018-19. In that year, its revenue was Tk60 crore and its net profit was Tk0.77 crore. According to its financials, Miracle earned the highest-ever revenue and profit in FY17.

Early in October, the BSEC formed a three-member committee to conduct a special inspection on the re-commencement of production of Miracle Industries after the execution of the share transfer to new owner Mehmood Equities. 

Disclosure to resume factory and share price hike

After the change of ownership, Miracle said in a disclosure on 21 August, under the new management with necessary investment, the production of Miracle Industries will start by 30 September.

On 10 October, the BSEC team visited the factory of Miracle Industries in Gazipur and found that it had not resumed production.

Meanwhile, the company's share price rose by nearly 89% in the 16 working days following the announcement of the plant's opening.

On 20 August, Miracle's share price was Tk30.4, which increased to Tk57.4 on 13 September.

The company's share price is now down after hitting a two-year high in September. On 23 October, the closing price of the shares was Tk39.3.

The BSEC inspection team in its report also mentioned that Miracle Industries has committed violations of securities rules by not being able to open the factory on time as it declared.

As Miracle Industries, which raised capital through an Initial Public Offering (IPO), is allowing another company to use its resources, the BSEC team feels that the raised fund could have been misappropriated. In that case, public shareholders will be deprived.