The troubled Ring Shine Textiles has finally scrapped the share purchase agreement (SPA) with Wise Star Textile Mills and five other Singapore-based firms, citing their failure to fulfill the terms of conditions.
It recently sent a letter, notifying the managing director of Wise Star Textile Mills of the termination of the deal. Wise Star Textile had been leading the five other companies in the deal making. The Financial Express has seen a copy of the letter.
In October last year, the Bangladesh Securities and Exchange Commission (BSEC) allowed the six organisations to take over the struggling Ring Shine, subject to eight conditions.
The new owners were supposed to acquire 190.03 million shares or a 37.98 per cent stake [of sponsor-directors] in Ring Shine Textiles at a negotiated price.
The transaction rate was, according to the SPA, Tk 0.01 per share, which Ring Shine rejected saying the share price was undervalued and was fixed in violation of the securities law. The minimum rate, at which shares can be exchanged, is the face value of Tk 10 per share.
The ownership transfer also required taking care of the existing liabilities, including bank loans and other dues, of Ring Shine. At present, bank loans of Ring Shine amount to Tk 5.50 billion, with Tk 800 million owed to the Dhaka Export Processing Zone in Savar.
Moreover, prior to share transfer, the new owners would have to resolve issues concerning the National Board of Revenue, such as customs duty, VAT and tax.
"As the purchasers are not injecting any investment," reads the letter, funds necessary to keep the company running depended on loans from banks, but banks rejected appeals of the company for funds before the execution of the share purchase agreement.
Brig. Gen. AHM Mokbul Hossain (Retd), managing director of Wise Star Textile Mills, could not be reached for comments.
The securities regulator last month appointed five independent directors to the Ring Shine board as the previous board's tenure expired on 26 January.
However, the existing sponsor-directors went to the court, and the High Court on January 29 stayed the operation of the new board for six months.
Then the company formed a new board for smooth operations.
Company secretary Auniruddho Piaal claimed that Ring Shine currently runs at 40 per cent capacity, the highest in four years, and that banks have come forward to extend support, for example in opening letters of credit (L/C) as the sponsor-directors themselves are looking after operations.
The capacity utilization will reach 60 per cent in near future as "we are getting fresh orders from buyers," said Mr Piaal. He claimed the company had already received orders worth $25 million in the past one month.
Financial performance
Ring Shine Textiles continued to suffer losses for the past three years.
The company reported a record loss in FY23 due to a rise in finance expenses, foreign exchange losses and utility costs.
All financial indicators of the company such as earning per share, net operating cash flow per share and net asset value per share were in the negative for the past three years.
The textile maker used only 22 per cent of its production capacity in FY23 due to a lack of orders and working capital, according to its earnings note.
Ring Shine Textiles raised Tk 1.50 billion using the fixed price method in 2019 for acquisition of machinery & equipment and loan repayment.
Of the IPO fund, the company used Tk 535 million as of August 2020. After that the BSEC put embargo on its IPO fund utilisation due to widespread allegations.
How Ring Shine plunged into crisis
Ring Shine Textiles got listed in early December 2019. But after listing, it could not do business properly due to numerous irregularities.
The company raised its paid-up capital from Tk 99.50 million to Tk 2.85 billion by issuing pre-IPO shares, known as placement shares, to the then sponsors, directors, and 73 external local shareholders.
However, 11 sponsor-directors and 33 external shareholders did not make any payment against the shares that they received.
Soon after the listing, the 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 into production partially.
The company distributed a 15 per cent stock dividend for the listing year 2019. For the last four years, the company paid no dividend.
Although the then board recommended 1 per cent cash and 1 per cent stock dividend for FY20, the reconstituted board cancelled the decision owing to losses confirmed by a revaluation of its assets.
Stock performance
The stock tumbled 94 per cent after the stock market regulator lifted the floor price as the chaos surrounding ownership change hit the investors' sentiment.
It closed at Tk 6 per share on Sunday, from Tk 9.80 on January 18 this year.
Meanwhile, the regulator downgraded the stock to 'Z' category on February 18 as the company failed to declare dividends since 2019.
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