Union Capital's liabilities outstrip assets, with losses ballooning

Non-bank financial institution Union Capital's liabilities have exceeded the total worth of its assets, with losses accumulating for the four years to 2022.

It suffered a consolidated loss of Tk 2.06 billion in 2022 while the aggregate loss in the four years stood at Tk 4.91 billion, as per the data available on the Dhaka Stock Exchange.

Now, the liabilities are higher than assets by Tk 2.73 billion, as estimated by the auditor of the company.

According to a stock market filing on Wednesday, the company's total consolidated liabilities stood at about Tk 18.89 billion as of 2022 while assets were worth Tk 16.16 billion.

Union Capital's financial statements show that its net assets value per share is Tk 15.86 in the negative and the earnings per share (EPS) is also negative at Tk 11.95 for 2022.

The capital adequacy ratio was 15.12 per cent in the negative for 2022, which indicates the entity's heavy dependence on liquid assets from external sources, the auditor said.

A negative capital adequacy ratio implies that the company is exposed to higher insolvency risk and may not have sufficient capital to overcome losses. That in turn raises doubts about the company's ability to continue its operation, reads the auditor's note.

Stock market analysts said the company's profits had plummeted for the past four years due to irregularities and mismanagement in debt disbursement.

Union Capital has been trapped into a high volume of classified loans, negative capital adequacy ratio, excess liabilities, and swelling losses, which, according to the auditor, would be difficult to get out of.

The company must have maintained a capital of Tk 1.69 billion. But its capital stands at Tk 2.36 billion in the negative, resulting in a shortfall of Tk 4.15 billion as of 2022, reads the auditor's notes.

The company provided loans to its subsidiary -- UniCap Investments -- amounting to Tk 1.53 billion, but has not received any interest payment since October 2019.

FDRs kept in two scam-hit financial institutions -- Bangladesh Industrial Finance Company and International Leasing -- amounting to Tk 965 million are equivalent to 5.97 per cent of the company's total assets.

Company secretary of Union Capital Md Abdul Hannan could not be reached for comments.

The losing trend persisted into the first half of this year as the company reported Tk 1.03 billion in further loss in January-June this year.

According to the financial report, the company's interest income, returns on investment, and brokerage commissions on share transactions dropped significantly.

However, provisioning against defaulted loans has gone up.

At the end of June 2023, provisioning against defaulted loans rose to Tk 740 million, which is 37 per cent higher than the same period of the previous year.

The company could not declare any dividend for shareholders for the last four consecutive years.

The stock traded at far below the face value of Tk 10 each share for more than a year.

It closed at Tk 7.30 on Wednesday, losing 2.67 per cent over the day before. That dragged down the market cap to Tk 1.29 billion, with 25 percent of the paid-up capital wiped out.

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