Aramit Ltd, a roofing material company, has found itself in trouble as it has lent Tk32 crore to its five associate firms without charging any interest in the last five years.
The Bangladesh Securities and Exchange Commission (BSEC) has asked Aramit Ltd to explain its position on the matter and recover the intercompany loans given in violation of the rules.
Previously, Aramit Cement Ltd, a concern of Aramit Group, also lent Tk77.21 crore to its associate companies without charging interest.
The securities regulator – in a bid to stop non-compliant intercompany lending by listed companies which deprives public shareholders – recently began to enforce a 2006 regulation meant to control funding flows to private concerns from publicly listed firms.
To protect public investors' interests, the rule stated that no listed company could give loans to any of its sister concerns. It also strictly capped the limit for lending to subsidiaries.
Of the 326 listed companies, two-thirds have already reported their intercompany loan data to the BSEC, and the regulator has found that more than 50 companies have violated the 2006 regulation.
According to sources at Aramit, investors have been deprived of their expected returns as the company lent to its associate firms without charging interest. Till fiscal year (FY) 2019-2020, the company lent Tk32.24 crore, which was Tk29.69 crore till FY2018-2019.
Market insiders said a listed company cannot be non-compliant if independent directors are playing a vital role in board meetings. Independent directors occasionally fail to protect the interests of investors of listed companies.
Additionally, such lending practices go directly against the interests of minority shareholders, they added.
The securities regulator also instructed Aramit to recover, within 15 days, the non-interest-bearing loans from the associate firms along with accrued interest at the borrowing rate which was in effect during that particular period.
Aramit recommended a 50% dividend for its shareholders for the year ending on 30 June, 2020. At the time, the company's net profit stood at Tk2.02 crore. Also, its earnings per share was Tk3.36 while net asset value was Tk137.66.
In the July-September period of this fiscal year, the company's revenue reached Tk10.46 crore and net profit was Tk0.4 crore.
Aramit was listed on the Dhaka Stock Exchange in 1984 and Chattogram Stock Exchange in 1995.
Its paid-up capital is Tk6 crore. Sponsors and directors hold 63.58% of its shares while institutions and general investors own 17.35% and 19.07%, respectively.
On Sunday, the closing price of the company's stocks on the Dhaka Stock Exchange was Tk281.10.
Aramit started its journey in 1972. Manufacturing and selling cement sheets are its principal activities and it now produces: large-section corrugated sheets, lightweight corrugated sheets, flat sheets, mouldings, and pipes.
The size of the cement sheet market is around Tk1,000 crore at present, and it is increasing by 10% every year.
Once a leading producer of cement sheets in the country, the company is now finding it difficult to compete with other players on the market.
While its competitors are using modern, automated technology, Aramit is still in the age of semi-automation.