Why six RACE-managed mutual funds fail to pay dividends in FY24

The country's largest asset manager RACE Asset Management has disappointed its investors as six of its managed closed-end mutual funds failed to declare dividends for the fiscal 2023-24.

RACE manages 10 closed-end mutual funds, and six of them have reported their financial results for the last fiscal year, while the rest are yet to disclose their financials.

According to the price-sensitive information filed with the Dhaka Stock Exchange (DSE), the trustee Investment Corporation of Bangladesh (ICB) of EBL First Mutual Fund, Trust Bank 1st Mutual Fund, IFIC Bank 1st Mutual Fund, First Janata Bank Mutual Fund, First Bangladesh Fixed Income Fund, and Exim Bank 1st Mutual Fund has decided not to pay any dividends for the FY24 due to incurring losses.

The six funds together incurred losses of Tk350 crore in the last fiscal year, according to their statements.

All of the funds' units are being traded below Tk5, while the face value of these funds' units is Tk10 each.

Hasan Taher Imam, managing director of RACE Asset Management, told The Business Standard that RACE-managed funds had paid Tk522 crore in dividends over the past three years. However, in FY24, they were unable to generate sufficient profit to declare dividends.

He explained that after the withdrawal of the floor price in January, the DSE key index DSEX dropped by around 25%. Fundamental stocks experienced a more significant decline than junk stocks.

"As we always invest in shares of good companies, we have incurred huge losses due to this fall," he said.

In addition, the fall in indices has reduced the value of the assets in their portfolio, leading to significant provisioning against the losses.

Meanwhile, in June this year, the Bangladesh Financial Intelligence Unit (BFIU) instructed all scheduled banks in the country to freeze banking transactions involving 12 mutual funds managed by RACE. The Bangladesh Securities and Exchange Commission (BSEC) also blocked the BO (beneficiary owners) accounts of these funds.

Hasan Imam said the Shibli Rubayat-Ul Islam-led commission and BFIU blocked their accounts following a complaint written in a white paper by an individual. "But the blocked accounts are not RACE's accounts – they belong to investors. Due to this block, we could not realise capital gains on time," he added.

Sarafat and Imam obtained the licence for RACE Management PCL in 2008.

Chowdhury Nafeez Sarafat holds around a 25% stake in RACE and currently serves as a director of the company. Both Nafeez and Hasan Taher have been accused of violating regulations and using investors' funds for their own interests.

Additionally, they face allegations of embezzling investors' money and engaging in money laundering.

In 2009, Nafeez and Hasan Imam bought 5.5 crore sponsor shares in Farmers Bank (now Padma Bank) using money from investors in nine RACE-managed funds.

Nafeez, as the representative of First Bangladesh Fixed Income Fund, First Janata, and Popular Life First mutual funds, and Hasan Imam, as the representative of Trust Bank First, EBL First, IFIC Bank First, PHP First, EBL NRB, and AB Bank First mutual funds, became directors on the board of Farmers Bank.

Regarding this, Hasan Imam said, "As a promising sector, we invested the investors' money in the bank, amounting to about Tk60 crore. Adequate security has been maintained against this investment."

"Additionally, the bank has investments from government banks, and the merger plan with Exim Bank is ongoing. This plan has not been cancelled, even under the current government and central bank governor. Therefore, I believe the merger will proceed."

He further said Exim Bank is a listed bank, and after the merger, they expect to receive Exim Bank shares in exchange for Padma Bank shares, which would allow them to exit from the bank.

Farmers Bank collapsed in 2017. Instead of shutting it down, the government provided equity support through state-owned banks. The bank was subsequently renamed Padma Bank, and its board was reconstituted, with Chowdhury Nafeez Sarafat appointed as chairman.

However, under Nafeez's leadership, the bank's condition did not improve. Due to the ongoing financial crisis, the bank is now unable to repay its depositors. Nafeez resigned from Padma Bank in January this year, while Hasan Imam had resigned from the bank in 2022.

Hasan Taher addressed the allegations of embezzlement and money laundering against him, saying, "My name is coming up in various allegations because of Nafeez. I have no other activities outside of RACE. Moreover, no truth has been found in the allegations made against me."

He added, "Nafeez and former BSEC chairman Shibli often asked me to buy various speculative stocks, but I rejected those requests. As a result, they harassed me in various ways. They also had a plan to transfer the funds under my management to another company. I have fought against this group for the last five years."