Scam-hit Ring Shine Textile now faces eviction over unpaid dues

After a scam in its pre-placement share issuance, Ring Shine Textile, a foreign-owned firm, has fallen into deep trouble due to its failure to pay outstanding dues to the Bangladesh Export Processing Zone Authority (Bepza), which may lead to eviction from its six plots.

If evicted from plots 231 to 236, the textile firm located in the Dhaka Export Processing Zone will lose the reserve tank of its effluent treatment plant (ETP), which may lead to an indefinite factory closure, according to company officials.

The fresh uncertainty has arisen as the Bangladesh Securities and Exchange Commission (BSEC) yesterday rejected its plea to release $1 million, equivalent to around Tk12 crore fund from its frozen IPO funds to settle dues with Bepza.

The company had sought this release with the approval of its shareholders during its annual general meeting (AGM).

Expressing his dissatisfaction with the regulator's decision, Aniruddho Piaal, managing director of Ring Shine Textile, told TBS, "It took seven months for the regulator to make a decision – that's too long." He added, "If the decision had come earlier, we could have explored alternative funding options from banks or other sources. Now, we have no way to retain the plots for the company, as the court has also dismissed the writ petition against Bepza's move to auction the six plots."

Piaal further said, "Although we did not get any eviction notice from the authorities concerned, the company must vacate the plots as we failed to keep our commitment for partial repayment. If we lose the plots, the factory will face closure until a new reserve tank is built."

When asked about the BSEC's rejection, Abul Kalam, spokesperson for the commission, told TBS that the decision was made after "thoroughly considering the overall situation of the company and in the best interest of investors." 

Regarding the rejection despite shareholder approval at the AGM, Kalam explained, "At the AGM, shareholders are often not presented with complete and accurate information. When a proposal is raised, it usually gets passed. However, the final decision to reject was taken after reviewing both the shareholders' approval and the commission's own assessment."

According to a Bepza letter issued in February, Ring Shine Textile's dues to the authorities had mounted to approximately $1.28 crore as of that month. In a meeting with Bepza in January, the company had committed to a down payment of around $1 million but only managed to pay $1.55 lakh. Ring Shine Textile had initially applied to the stock market regulator in January, seeking the release of the $1 million in the interest of both shareholders and the company. The commission rejected this plea nearly seven months later, in mid-July.

Piaal noted that after recovering from the impact of Covid-19 and securing fresh orders from foreign buyers, Ring Shine Textile's business had significantly bounced back. He lamented, "The company fell into an uncertain situation with its business. If the regulator had rejected the application previously, the company could have managed the fund to partially offset its dues with Bepza."

Ring Shine entered the capital market in 2019, raising Tk150 crore for business expansion through share issuance. The company faced difficulties during the pandemic as its export orders declined significantly. 

On 22 October 2020, the BSEC froze the company's IPO account due to non-compliance with the consent letter requirements for fundraising. The frozen funds initially amounted to Tk34.80 crore, with the company earning over Tk5 crore in interest by the 2023-24 fiscal year, bringing the total frozen amount to around Tk40 crore, according to sources.

IPO funds kept at 0.075% interest

A significant concern for the company and its shareholders is the meagre interest earned on the frozen IPO funds. Ring Shine Textile held Tk13.70 crore of its IPO funds in a current account at BRAC Bank, earning a mere 0.075% interest rate, with no interest on its foreign currency accounts holding $1.786 million, £6,847, and €2,706.

Last October, Ring Shine Textile wrote to the BSEC requesting permission to change account types, product types, and foreign currency accounts, or to transfer the funds to another bank for higher interest rates. The textile firm also requested that the accrued interest be credited and released for working capital utilisation. However, the regulator has yet to make a decision on this application.

In its letter, Ring Shine highlighted the vast disparity between its current interest rate and the 14% per annum available at alternative banks. The company stated that the negligible interest on its IPO funds represented "inept management of public funds resulting in a substantial loss in financial opportunities on behalf of the common shareholders.

Piaal said, "The IPO fund is general investors' money, which remained in the bank for around four years with very insignificant interest rates that resulted in significant losses every year. If the commission allowed changing account type or transferring the funds to another bank, the company would earn a substantial amount of interest from the funds."

IPO scam

The company's current woes are set against the backdrop of an alleged IPO scam. According to BSEC findings, a syndicate, including controversial tax official Matiur Rahman and FAR Group Chairman Abdul Kader Faruk, embezzled hundreds of crores of taka by issuing new shares in Ring Shine Textiles Limited without any actual investment. 

An Indian national, Ashok Kumar Chirimar, who served as the company's supply chain agent, is also implicated in the fraud scheme.

On 7 July, the BSEC announced a travel ban on 13 individuals connected to Ring Shine Textiles, including the company's sponsors, former directors, managing director, executive director, CFO, and company secretary, including Faruk and Chirimar.