Zahintex under scanner over disparities in financial statements

Infographic: TBS

 The Bangladesh Securities and Exchange Commission (BSEC) has launched a review into Zahintex Industries following the discovery that the textile company had submitted different financial statements to the National Board of Revenue (NBR) and the Dhaka Stock Exchange (DSE).

In a recent letter to the BSEC, the NBR stated that its Central Intelligence Cell had discovered discrepancies in the information regarding revenue, cost of goods sold, net profit, and earnings per share for the 2014-15 and 2015-16 fiscal years in the documents submitted by the firm to the entities.

The revenue authority 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 the purpose of loan payments and working capital.

As part of its scrutiny, the commission has asked the company for related documents, including copies of tax assessments and tax returns submitted to the NBR, within seven working days, said a BSEC official. 

He said that the company may have submitted different financial statements to the DSE and the NBR in an attempt to evade taxes. He added that the commission will thoroughly examine all the documents and take appropriate action if any inconsistencies are noted.

The company denies the allegations about discrepancies in its financial statements.

"The company prepares a single financial statement that is submitted to the regulator, stock exchanges, and the NBR. However, we are unaware of how the NBR received two different sets of information in the financial statements," Company Secretary Md Liakat Ali Bakhtiar told The Business Standard.

Incorporated in 2002, Zahintex Industries is involved in manufacturing and exporting ready-made sweaters and pullovers.

Its business has significantly dropped owing to the global crisis and the Ukraine-Russia war, he added.

He also said the company's operation depends on orders from its buyers, which have slowed now.

In January last year, the commission recommended Zahintex Industries appoint three new independent directors in view of the deterioration in performance by the knit garment manufacturer.

They were Major Abdul Quddus Mozumder, Dhaka University's Assistant Professor of Management Sarina Banu, and the same university's Banking and Insurance Department's Assistant Professor Md Nazmul Hasan.

The BSEC also asked the managing director of the listed apparel exporter to remove an existing independent director, Khatib MA Rubel, who had been appointed through a breach of the rules.

Rubel is a relative of the company's Managing Director Khatib AZ Mukul and appointing relatives as independent directors is a violation of the Corporate Governance Code.

Zahintex logged nearly Tk9.3 crore in annual profits in 2016, and since then the graph has been consistently down. In 2019, the company stepped into losing territory.

In fiscal 2018-19 alone, it incurred a loss of Tk18.3 crore, roughly equal to what it had made in the three previous years.

And, in fiscal 2019-2020, the company with Tk81.83 crore of paid-up capital lost Tk30.8 crore, which slightly declined in fiscal 2020-21.

It has not been able to recommend dividends in the last few years due to continuous losses. Lastly, it recommended a 3% cash dividend for its shareholders for FY18.

Zahintex shares are stuck at the floor price of Tk9 each on the Dhaka Stock Exchange. In 2012, its shares had soared to above Tk57, before nosediving to a historic low of Tk2.5 in late 2019.

As of 31 May 2023, sponsors and directors jointly held 36.94%, institutions 21.73%, and the general public 41.33% of the shares in the company.