Zahintex faces a risk of delisting amid financial challenges
Zahintex Industries is facing the threat of delisting from the stock market due to failure to pay cash dividends, mounting losses, a significant increase in long-term loans, and discrepancies in financial reporting.
The Bangladesh Securities and Exchange Commission (BSEC) has initiated an investigation into the company and has sought various documents to assess its financial health.
According to a BSEC notification, if a company incurs a net loss for three consecutive years and fails to declare any cash dividends during that period, it may face delisting from the main board. Additionally, if the accumulated loss or debit balance in the company's retained earnings exceeds its paid-up capital, it could also be delisted from the capital market.
The share price of the company closed at Tk5.20 on the Dhaka Stock Exchange (DSE) on Thursday.
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The BSEC has observed that the company has been incurring significant losses over the years and has not declared any dividends for investors for four consecutive years, making it subject to the exit plan rules.
As of 1 July 2022, the company reported retained earnings of Tk42.18 crore. However, the actual figure at the end of June 2022 was Tk66.83 crore, resulting in a discrepancy of Tk24.65 crore.
Similarly, on 31 March 2023, the company reported retained earnings of Tk66.59 crore, while the actual figure should have been Tk91.24 crore, reflecting the same discrepancy of Tk24.65 crore.
The company's management also failed to disclose critical, price-sensitive information about relocating two factory premises and changing the head office address to regulators and investors on time.
Zahintex Company Secretary Md Liakat Ali Bakhtiar did not respond to phone calls from this TBS reporter seeking comment on the issue.
According to the regulator, the inspection team requested various documents, such as loan classification status and bank statements for export proceeds, but the company delayed providing these documents.
From 2019 to 2023, the company's long-term loan increased significantly, rising from Tk89.97 crore to Tk166.51 crore by June 2024, an 84.07% increase.
The financial statements reveal that the company's earnings per share (EPS) have been negative for the past five years. Despite this, long-term loans continued to rise, which is detrimental to the interests of general investors and the capital market.
At the end of FY23, the statutory auditor reported a material inventory balance of Tk159.23 crore, approximately 3.98 times higher than the company's revenue. This inventory has been carried forward for several years, creating risks of obsolescence and tying up working capital. The high inventory also leads to increased storage costs and strains liquid cash, which requires an explanation from the company.
The BSEC has now asked the company to submit the following documents within seven working days:
Loan sanction letters, loan rescheduling documents, and loan statements for the last five years; the export records, VAT returns, sales, inventory details, and related documents for the last five years; and the justification for transferring the revaluation reserve and PSI (price sensitive information) reports for the last five years.
In June 2023, the BSEC launched a review into the company following the discovery that Zahintex had submitted different financial statements to the National Board of Revenue and the Dhaka bourse.
The revenue authorities also called upon the market regulator to take action against the knit garment manufacturer, which was listed on the bourses in 2011 to raise Tk50 crore with a Tk15 premium per share for loan payments and working capital.
As of 30 November 2024, the company's sponsors and directors held 36.94% of the shares, institutions held 21.35%, and the general investors held 41.17%.
