National Tea’s fundraising in limbo

Infographics: TBS

Once again, National Tea Company has hit a snag in its effort to raise capital through share issuance as investor interest remains lukewarm.

Despite extending its subscription period by five months, following a weak initial response from existing shareholders, the tea producer has failed to raise the expected funds.

So far, it has managed to raise only 40% of its Tk279 crore target.

With the fundraising effort faltering, National Tea has sought another three-month extension from the Bangladesh Securities and Exchange Commission (BSEC) to keep the plan alive.

AK Azad Chowdhury, company secretary of National Tea, said, "Due to low investor response, we did not receive sufficient funds. After the extended tenure ended in March, we applied to the BSEC for another three-month extension to meet the target." 

He expressed hope that if the extension is granted, the company would be able to complete the fundraising within the new timeline.

Tk111cr raised, but usage on hold

So far, through two rounds of subscription, the National Tea Company has raised around Tk111 crore — Tk44 crore in the first round, which ended on 19 September 2024, and Tk58 crore in the second round, which concluded on 31 March this year, according to company sources.

However, its ability to use the funds raised remains uncertain due to regulatory requirements.

Before the issuance of over 44 lakh shares under the first subscription, the government, ICB, and Sadharan Bima Corporation held a combined 42.72% stake in the company.

However, as of February this year, the combined holding of sponsor-directors, including ICB and Sadharan Bima, dropped to 32.15% from 44.90% in June 2023. The government's stake dropped to 2.59% from 4.33%, and institutional investors' holding declined to 12.22% from 14.75% over the same period. 

In contrast, the general shareholders' stake rose to 53.04% from 36.02% in June 2023.

Following the decline in holdings, the BSEC extended the subscription period by five months in October last year, till March 2025. 

The regulator also mandated that the government must hold at least 51% of the company's shares. If the condition is not met, the company will not be allowed to use the funds raised through private placements.

Officials at NTC said the fresh share issuance is in a tight spot as its major shareholders – ICB and Sadharan Bima Corporation – did not fully subscribe to the offer. 

ICB only partially subscribed, and Sadharan Bima Corporation did not subscribe at all, preventing the company from meeting the 51% threshold. 

After the issuance of new shares, National Tea Company's paid-up capital increased to Tk11.04 crore from Tk6.6 crore. However, the company initially aimed to raise the capital to Tk30 crore to comply with regulatory requirements.

The fundraising plan

In September 2022, National Tea Company floated a plan to increase its paid-up capital through private placements among existing shareholders. 

Under the scheme, general shareholders were eligible to receive three newly issued shares for each of their current holdings. The tea producer intended to raise funds to meet working capital needs, support field and factory development, and repay bank loans.

After analysing the company's proposal, in April 2023, the BSEC approved the issuance of new shares.

As per the regulator's decision, the company was allowed to issue 2.34 crore ordinary shares at Tk119.53 per share (with a Tk10 face value and Tk109.53 premium) through private placements among its existing shareholders.

In July 2023, a shareholder filed a writ petition with the High Court against the company's share issuance plan approved by the BSEC, alleging that the company had not treated all existing shareholders equally.

Later, the court stayed the BSEC's approval. But, upon a petition by the market regulator, the chamber judge of the Appellate Division stayed the High Court order.

Following the legal developments, the placement share subscription was announced to open from 19 June to 19 August 2024 during banking hours, nearly a year after the initial plan. 

The subscription period was extended until 19 September due to political instability and the July movement.

About NTC and financials

Incorporated in 1978 and listed on the capital market in 1979, National Tea Company cultivates, manufactures, and sells tea and rubber in the local market.

The company's average annual tea production is about 5.2 million kilograms, most of which is sold through the Chattogram auction market.

In 2000, National Tea began small-scale direct sales through dealers in the local market. It also operates a sales centre at its registered office for all consumers.

National Tea Company has been incurring losses for the past five fiscal years, accumulating a total loss of Tk214 crore as of FY2023-24. In FY24 alone, the company incurred a loss of Tk70.94 crore.

According to disclosures published on the DSE website in January this year, the company posted a per-share loss of Tk107.49, higher than the Tk96.24 per share loss in the previous fiscal year.

Additionally, the company failed to hold its annual general meeting (AGM) for FY24 and has not published its financial statements for the last two quarters of the current fiscal year, up to December 2024, leaving investors in the dark.

Both failures – not holding the AGM and not disclosing the six-month financials – constitute violations of stock exchange listing rules.

The company has also requested a three-month extension from the BSEC to submit its half-yearly financials.