Regulator seeks BFIU help in probing Golden Harvest's fund 'misuse'

The Bangladesh Securities and Exchange Commission (BSEC) has asked the Bangladesh Financial Intelligence Unit (BFIU) to investigate a potential misuse or unauthorised handling of a Tk22 crore Fixed Deposit Receipt (FDR) by Golden Harvest Agro Industries Ltd. 

The publicly listed company, known for its frozen food and ice cream products, opened the FDR with the Standard Bank utilising a portion of the nearly Tk90 crore fund it raised through issuing rights shares in 2019 for business expansion. 

According to BSEC officials, converting rights share funds into an FDR constitutes a breach of securities law. Additionally, Golden Harvest may have secured a loan against this FDR without obtaining consent from investors, which also violates the law.

In late June, the commission wrote to the central bank's BFIU to investigate the potential misuse of the FDR funds by the company.

The BSEC sought assistance from BFIU because Golden Harvest did not provide adequate information to the commission despite inquiries.

In March this year, the securities regulator formed a three-member team to review the utilization of funds raised from a rights share offering totalling nearly Tk90 crore.

Despite the funds being raised four years ago, the company has not fully utilised them. The team will audit the entire fund utilisation as per management's declaration and investigate related party transactions since the company's listing.

In 2019, the company raised funds by issuing 8.99 crore rights shares for business expansion, offering them at a ratio of three rights shares for every four existing shares at a face value of Tk10 each. 

However, as of March this year, the company has utilised only Tk70 crore of the fund, with the remaining amount still unused.

An official of the company, on condition of anonymity, said that the main reason for the delay in fund utilisation was the pandemic, adding that a significant portion of the fund has already been used. 

The company also faced difficulties in opening letters of credit (LCs) for machinery acquisition due to the dollar crisis and other economic uncertainties. The company now seeks more time to use the rest of the amount for opening an LC for machinery, he said.

Previously, the BSEC queried the company about its improper utilization of the rights share fund. According to BSEC sources, the company invested the funds in Braintrain Studio Ltd, its subsidiary, and allocated excessive advances for infrastructure development.

Furthermore, the commission discovered that the same individual serves as managing director at both Golden Harvest and Braintrain Studio. This indicates that payments between these companies constitute related party transactions, which are permissible only with investor approval. However, the company executed these transactions without adhering to proper procedures.

Ups and Downs

Before its stock market listing in 2013, the company had shown promising business performance. In June 2011, its revenue stood at Tk52.65 crore, and net profit after tax was Tk13.23 crore, marking the best year for Golden Harvest's business. 

In 2018, the company filed to issue rights shares to expand its business and secured BSEC approval in October 2019. However, after receiving the rights share fund, its revenue and net profit have declined.

In the 2020-21 and 2021-22 fiscal years, the company's revenue dropped significantly, and it incurred huge losses, depriving general investors of expected returns. 

In the July to March period of 2024, the company's revenue stood at Tk70.87 crore, compared to Tk71.57 crore in the same period of the previous year. Its finance cost stood at Tk12.87 crore, and its net loss was Tk6.57 crore. 

Last fiscal year, the company recommended a 1% cash dividend for its shareholders. 

Golden Harvest's shares closed at Tk14.60 each at the Dhaka Stock Exchange on Wednesday.

As of 31 May 2024, sponsors and directors hold 30.42%, institutions hold 37.57%, foreign investors 0.31% and general investors hold 31.70% of the company's shares.