Khan Brothers PP Woven Bag Industries finally decided to sell ownership to BSB-Cambrian Education Group, having failed to return to profit due to a severe working capital shortage.
However, the fact that the decision comes days after the securities regulator ordered a probe into the recent escalation of the stock of Khan Brothers on the Dhaka bourse engendered suspicion.
A memorandum of understanding (MoU) was signed between the parties on Wednesday, according to a stock exchange filing on Thursday.
"BSB Cambrian Education Group has expressed their willingness to take over the management and operations of Khan Brothers PP Woven Bag Industries," reads the disclosure.
BSB-Cambrian is one of the leading national and international education consultancy and student recruitment agencies in Bangladesh. It has more than two dozen sister concerns, including private college, university, media and travel & tour operators business.
It will acquire shares of Khan Brothers from the current board of directors "at a negotiated value".
Khan Brothers signed the deal four days after the Bangladesh Securities and Exchange Commission (BSEC) ordered the Dhaka Stock Exchange (DSE) to investigate the recent unusual share price surge of Khan Brothers.
As per the deal, BSB-Cambrian Education Group will acquire 29.55 million shares or a 30.13 per cent stake of sponsor-directors in Khan Brothers.
However, the decision needs approval of general shareholders and the stock market regulator before execution.
Khan Brother's stock closed at Tk 171.6 per share on Thursday on the Dhaka Stock Exchange. That means the market value of sponsor-directors' stake comes to Tk 5 billion at the current market value.
The company has been suffering from a severe working capital shortage, which forced it to survive by subcontracting work for long. Yet, losses piled up to Tk 48 million in the four years to FY23.
Founder & Chief Executive of BSB-Cambrian MK Bashar could not be reached to learn why his company wants to buy a loss-making company.
Khan Brothers' total assets stood at Tk 1.23 billion as of March this year while the value of property, plant & equipment is Tk 461 million. It has liabilities amounting to Tk 70 million as of March.
The auditor of Khan Brothers identified a number of irregularities in the financial statements for FY23, including overstated sales, assets and inventories.
It also found a significant gap between real and reported amounts of raw materials and finished goods when they conducted a physical examination.
Khan Brother's business is about manufacturing different types of PP Woven Bag and selling them in the local and international markets.
Stock Performance
The loss-making company's stock more than doubled in the month to Sunday to Tk 176.5 per share without any reason for investors to be keen on betting on the stock.
The securities regulator then ordered the prime bourse to investigate the price escalation of Khan Brothers.
The regulator also asked the DSE to make its officers concerned alert to suspicious trade executions.
Khan Brothers had experienced rallies many times, not supported by its fundamental strength.
The stock, however, dropped 2.78 per cent in the four days to Thursday to Tk 171.6 per share following the regulatory order.
The stock made it to the top gainers' list frequently in recent times even though the firm has been incurring losses. It made a loss of Tk 4.70 million in the nine months through March this year.
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