Experts and investors smell a rat in the recent decision of Daffodil Computers to issue shares to non-listed Creative International at face value in repayment of a debt of Tk 467 million.
Both the organisations belong to the Daffodil Family, but Daffodil Computers have free float shares in the hands of general people.
The board of Daffodil Computers has considered issuing 46.7 million shares at Tk 10 each to Creative International while the current market price of the shares is Tk 66 each.
The deal, if approved by the regulator, would benefit the common ownership, leaving general shareholders to bear the impact of earnings dilution.
"The implementation of the decision involves a conflict of interest as the owners of both the companies are the same," said Md. Ashequr Rahman, managing director of Midway Securities.
Daffodil Computers' earnings would be diluted following the inclusion of fresh shares. There would have been no problem in that if general shareholders had no stake in Daffodil Computers.
"General investors will mainly bear the dilution impact since they are not among the beneficiaries of fresh shares," Mr Rahman added.
The securities regulator may impose a lock-in period on the new shares.
If there is no lock-in period, the owners of Daffodil Computers will be able to bag hefty profits by selling the shares right away in the secondary market at the current price.
Even with a lock-in period, they have a good chance of making huge profits.
If the company's share price, for example, declines to Tk 50 each on the bourses after the lock-in period, the owners will reap a 400 per cent capital gain. If the stock price plummets further to Tk 20 per share, there will still be a 100 per cent capital gain.
Asked why the shares would be issued at the face value when the market value is much higher, company secretary Md. Monir Hossain said the price had been fixed in line with the face value.
"The price may increase if shareholders demand that at the AGM (annual general meeting)," Mr Hossain said.
The board of Daffodil Computers decided against issuing shares to general investors because the shares are meant to repay a loan taken from Creative International, he said.
"The proposal of issuing fresh shares will be submitted to the securities regulator, subject to the shareholders' approval at the AGM.
"Everything will depend on the shareholders," added the company secretary.
Meanwhile, the stock of Daffodil Computers has experienced a sharp fall since August 8. It endured 28 per cent erosion to Tk 60 per share by December 19. Monday's closing price was Tk 66.7 per share.
The board of directors recommended 5 per cent cash dividends for the year ended in June this year.
The company experienced a 61 per cent year-on-year decrease in profit to Tk 10.58 million in FY24.
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