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Here is why Minori's claim of Tk 4b foreign fund into Emerald Oil seems hollow

BABUL BARMAN AND FARAN FARDAUS | February 13, 2024 00:00:00

The struggling Emerald Oil Industries' ambitious plan to bring in a foreign investment of Tk 4 billion by selling its shares or placing a lien against them seems elusive as the data does not add up.

Minori Bangladesh recently claimed that it had already inked a deal with Dubai-based Safa Capital for the fund to be used to build a new plant in Jamalpur Economic Zone so that it can increase production and export, according to reports published in newspapers.

It said it would sell shares from its stake in the company or keep them as collateral to get the fund as working capital and that the new factory would be operational by March 2025.

However, Minori, which invested Tk 315 million in 2021, facilitating the restructuring of the company's board to resume production after five years, will not be able to get Tk 4 billion even if it sells its entire holdings or put a lien on the shares.

The managing director of Emerald Oil, Md. Afzal Hossain declined requests to make any comment over the phone, saying he was sick and outside the country.

Md. Ashraful Alam, chief financial official of the company, too refused to say anything about the plan.

Meanwhile, Minori Bangladesh, a subsidiary of Japanese firm Minori, sought permission from the Bangladesh Securities and Exchange Commission (BSEC) for keeping locked-free shares with one or more institutions for liquidity support.

The securities regulator in response gave its permission, subject to compliance with the minimum share holding requirement of 30 per cent in the company by sponsor-directors.

At present, the collective shareholding by sponsors and directors accounts for 59.61 per cent of the paid-up capital of the company, including 39.69 per cent held by Minori Bangladesh.

The BSEC in its letter to Minori also said the newly-disbursed shares against the investment made by Minori, which were locked-in for three years, were not exchangeable.

That makes the plan not enforceable even partially.

Minori's plan brings forth another question as to why it did not disclose the price sensitive information on the website of the stock exchanges.

Violation of securities laws

Following the news on the investment plan, the Dhaka Stock Exchange and the Chittagong Stock Exchange sought explanation from the company.

Talking to the FE, company secretary Md Emran Hossain said Minori had given its explanation but refused to elaborate on that.

When asked, a top official of the DSE, requesting anonymity, said, the prime bourse was investigating the matter.

According to the law, there are two kinds of information -- one is material information and another is price sensitive information. If there is material information, then it must be published on the company's website, and price sensitive information must be disclosed to the BSEC, the DSE, and the CSE within two hours after the decision has been made.

"They [Minori] should better know why they did not publish it [the investment decision]. If the news is not related to the company, it might be an attempt to influence the stock price," said BSEC spokesperson Mohammad Rezaul Karim.

What experts say

Market experts are skeptical about the plan as the company is yet to use its existing production capacity fully.

"Any foreign investment is welcome but this is a highly unusual transaction. It is very unlikely that the foreign company will invest in a company with negative equity," said Md Moniruzzaman, managing director of Prime Bank Securities.

Emerald Oil has Tk 946 million worth of negative equity, as per the financial statements for FY23, meaning the company has more liabilities than assets.

In 2021, Minori got the stock market regulator's nod to bring the company back into production, as its previous owners fled the country after defaulting on loans.

Representative of the Japanese company joined the board by investing Tk 315 million.

Emerald Oil is yet to generate expected revenue and profit. Its sales grew 158 per cent year-on-year to Tk 1.11 billion, while profit rose to Tk 66 million in FY23, from Tk 12.12 million in FY22.

Company officials said they could use half of the production capacity in FY23, increased from 23 per cent in FY22.

"There are many cases where companies said they would bring funds from outside the country but that did not happen," said Al Amin, of the accounting & information systems department at the University of Dhaka.

"Actually, the main objective of this kind of news is to influence the stock price of the company," he added.

Paid-up capital to expand

As per the regulatory approval, Emerald Oil Industries issued 31.5 million fresh shares in November last year at Tk 10 each against an investment of Tk 315 million by Minori Bangladesh.

With the new shares, the company's paid-up capital went up to Tk 912.7 million from Tk 597.1 million. These shares are subject to a lock-in period of three years.

Currently, Emerald Oil is producing around 56-60 tonnes of rice bran oil per day.

The additional rice bran oil from the new project, as it said, will be exported to Japan as per deals with two Japanese companies.

Stock Performance

As the new owner gave rise to optimism among shareholders, the stock price began flying on the premier bourse from the start of 2023.

The stock jumped more than 6 times to Tk 182 per share in just five months through July last year, which analysts deemed unusual.

It then fell to Tk 66 each share in the next six months to January this year. The company's shares started to rise on the bourses once again after the news of fresh foreign investment.

Emerald Oil jumped 30 per cent to close at Tk 85.7 per share in the month through Monday.

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