How Shibli-commission acted as magic lamp for Sonali Paper

The Shibli Rubayat-Ul Islam-led Securities and Exchange Commission leveraged its special authority in 2020 to facilitate Sonali Paper and Board Mills, granting at least 18 exemptions from regulations, including the requirement of a minimum paid-up capital of Tk30 crore and the condition of having positive net current assets for the past three financial years.

In June 2021, its share price was around Tk200, but within six months, it soared to Tk955 without any substantial new information. After issuing rights shares, the price even reached Tk920. However, it gradually nosedived and closed at Tk157.30 on Thursday.

After languishing in the over-the-counter (OTC) market for around 11 years, the paper-based manufacturer – a concern of Younus Group of Industries – returned to the main market of the Dhaka Stock Exchange (DSE) in 2020, ignoring its negative review of the company’s fundamentals. 

A DSE official, seeking anonymity, told The Business Standard that the stock market regulator appeared to favour Sonali Paper as if specifically tasked with providing them an opportunity. 

“Following its relisting on the DSE, the company’s share price was heavily manipulated under the Shibli commission’s protection,” he added.

During this period, the BSEC allowed multiple exemptions from listing rules, rights share issuance, and lock-in periods for directors’ share sales. These exemptions allowed the owners to withdraw over Tk100 crore from the market, seven times their original investment.

Attempts to contact Chairman Mohammed Younus for comment were unsuccessful. However, Md Rashedul Hossain, the company’s secretary, stated that after 11 years in the OTC market, they successfully returned to the main board in 2020 and are now complying with regulatory requirements.

Facilitation under the Shibli commission

After taking office in 2020, Shibli, who quit the BSEC on August 10 days after the fall of the Sheikh Hasina government, took steps to address issues in the OTC market, including facilitating the return of companies like Sonali Paper to the main stock exchanges. Before its relisting, the company had a paid-up capital of Tk15 crore. 

The DSE launched the OTC market in October 2009 with 51 underperforming companies, including Sonali Paper. The company had been attempting to return to the main board since 2011, but its appeals were repeatedly denied by the DSE board due to non-compliance with listing regulations, according to DSE sources. 

Finally, in July 2020, the commission allowed Sonali Paper to return to the main board, granting at least 18 exemptions from rules, including the requirement for a minimum paid-up capital of Tk30 crore and having positive net current assets for the last three financial years. 

The company was relisted directly on the main board, bypassing the IPO process due to these exemptions. Despite the stock exchanges’ previous refusals, the securities regulator allowed the company to re-enter the main market.

Facilitation of rights shares

In April 2022, the Shibli commission granted exemptions to Sonali Paper regarding the issuance of rights shares.

According to the guidelines, a company cannot issue rights shares within three years of listing on the main board of the stock exchanges, but Sonali Paper had been relisted only one year prior. 

At that time, the company’s paid-up capital was Tk21.96 crore. With the exemption, Sonali Paper increased its paid-up capital by issuing rights shares at a ratio of 1R:2 (one rights share for every two existing shares) at Tk10 per share.

Overvaluation of assets

According to a special auditor’s valuation, 11.50 acres of land in Rupganj, Narayanganj, was worth Tk316.25 crore, significantly less than the Tk517.50 crore stated in the FY21 audited financial statement.

The auditor found that the company had overstated the land’s value by Tk201 crore. Additionally, the same land was overvalued by Tk362 crore in 2016. 

The company, audited by MABS & J Partners for FY20 and FY21, was found to have reported fake sales, inflated valuations and revenue, and manipulated profits through false disclosures.

It also diverted loans intended for raw materials into stock investments, which is considered money laundering.

The inflated land value increased the company’s net asset value by 64.7% in FY20 and 63.2% in FY21.

Furthermore, loans of Tk22.50 crore for working capital were misused for stock market investments, violating anti-money laundering regulations.

Profit decline in Jan-Mar quarter

According to the January to March 2024 report, the company incurred a loss of Tk11.88 crore despite generating revenue of Tk70.05 crore, due to the volatile capital market.

The company reported a loss of Tk15.43 crore because of the market slowdown, with a per-share loss of Tk3.60.

The company is involved in the production of white, printing, simplex, and duplex papers for the local market.