The stock market regulator has conditionally allowed Wise Star Textile Mills and five Singapore-based private companies to take over troubled Ring Shine Textiles.
The Bangladesh Securities and Exchange Commission (BSEC) approved of a proposal put forward by Wise Star for transfer of 190.03 million shares of Ring Shine Textiles, including those held by sponsors and directors, according to a stock exchange filing on Tuesday.
In the ownership transfer process, Wise Star has been representing the Singaporean companies too.
Share transfer will take place at a price negotiated by buyers and sellers outside the stock exchanges but in compliance with securities laws.
These shares will be placed in the public category as the owners will be shareholder-directors, not sponsors, meaning the shares will be unblocked.
Wise Star, a private firm run by the managing director of another listed company Queen South Textile, will buy 2 per cent of Ring Shine's outstanding shares while the five other companies will take over 36 per cent stake in Ring Shine.
The regulator's permission is subject to some conditions.
The new shareholder-directors will have to take the existing liabilities of Ring Shine, including bank loans.
Wise Star assured the regulator that it would "regularise or arrange to regularise" the entire bank liabilities of Ring Shine, as per a consent letter issued last week.
Currently, bank loans of Ring Shine amount to Tk 5.50 billion while another Tk 800 million is owed to the Bangladesh Export Processing Zones Authority (BEPZA).
An official of Ring Shine, who spoke on condition of anonymity, said the company located in the Dhaka Export Processing Zone in Savar had assets worth over Tk 10 billion.
The board of the company will be reconstituted after the share transfer, incorporating new independent directors and shareholder directors.
The new board will begin the process of capital adjustment or cancellation of unsubscribed shares on receiving permission from the commission.
No legal actions will be initiated against the new shareholders and directors in connection with irregularities, non-compliance and offences committed by previous sponsor shareholders and directors, as per the consent letter.
The commission had halted IPO fund release in 2020 after the revelation of the irregularities committed by Ring Shine's sponsor-directors. Now, it may allow the new board to use the money left of the fund to ensure smooth operation of the company and payment to the BEPZA and of other dues.
Ring Shine Textiles raised Tk 1.5 billion in 2019 for acquisition of machinery & equipment and loan repayment.
Of the IPO fund, the company utilised Tk 535 million as of August 2020.
What led to the crisis facing Ring Shine
Ring Shine had already expanded paid-up capital from Tk 99.50 million to Tk 2.85 billion by issuing pre-IPO shares, known as placement shares, to existing sponsors, directors, and 73 external local shareholders.
However, 11 sponsor-directors and 33 external shareholders did not make any payment against the shares issued.
Soon after the 2019 listing, Covid-19 broke out and the company fell into a crisis due to a lack of demand for its products from foreign buyers.
Ring Shine mainly manufactures dyed yarn and gray and finished fleece fabrics of various qualities for both local and international markets.
Working capital shortfall, a decline in orders from foreign buyers, and raw material shortage led to the shutdown of the factory in September 2020.
The BSEC restructured its board in January 2021, appointing seven independent directors to observe the company's overall condition and make a plan on how to salvage the company out of its misery.
In June 2021, the factory went back to production partially and gradually increased production capacity until January this year, said company secretary Auniruddho Piaal.
Presently, the production remains suspended as the company is in the process of ownership change, he added.
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