The development comes as the company has failed to pay dividend since 2017
The stock market regulator has restructured the board of the non-performing Fareast Finance & Investment in its effort to protect the interest of general shareholders.
The Bangladesh Securities and Exchange Commission (BSEC) appointed six independent directors and three sponsor-directors, with Md. Ashraful Moqbul, a former chairman of Sonali Bank, proposed as the chairman of the new board of Fareast Finance.
The independent directors are Ihsanul Aziz, former AMD of Social Islami Bank; Sheikh Nazmul Hoque Saikot, Editor in Chief of Kingsnews24.com; Md. Sajib Hossain, an assistant professor of the University of Dhaka; AKM Shahiduzzaman, senior consultant; and Md. Mosharraf Hossain, a professor at Dhaka University’s management department.
The other sponsor-shareholders are Md. Shamsul Islam Varosha; Khadiza Waheed Jahan; Rimsha BD (represented by Ashaduzzaman).
The development comes as the company has failed to pay dividend since 2017. It last paid a cash dividend of 5 per cent in 2016, when it logged in a profit of Tk 10.3 crore.
Since 2018, its stock has been trading as junk stock in the Z-category.
“The company is not appropriately growing,” said the BSEC in its letter to the managing director of Fareast Finance.
The shareholders other than the directors of the company, who collectively hold 58.1 per cent of the paid-up capital, is not getting dividends for a long time.
“This is detrimental to the interest of the investors of the company and undesirable to the commission.”
The board has failed to take any steps to improve the company’s financial health.
In 2019, it logged in a loss of Tk 71.8 crore, in contrast to a profit of Tk 13.3 crore a year earlier. In 2017, it had registered a loss of Tk 93.8 crore.
In the first nine months of 2020, the company posted a loss of Tk 27.9 crore, down 72 per cent year-on-year.
During the period, its net operating cash flow per share -- which is all cash generated by its main business activities -- stood at Tk 1.3, up from Tk 0.8 in the negative a year earlier.
At the most fundamental level, a company’s ability to create value for shareholders is determined by its ability to generate positive cash flows.
Positive cash flows indicate that a company is adding to its cash reserves, allowing it to reinvest in the company, pay out money to shareholders or settle future debt payments.
And Fareast Finance’s seem precarious, which is why the BSEC decided to step in.
Last month, the stock market regulator restructured the boards of Emerald Oil Industries, Al-Hajj Textile, United Airways, C&A Textiles and Familytex for the same end.
According to the directive issued by the BSEC on Monday, the non-bank financial institution will not be able to sell, mortgage, pledge, transfer, transmit and dispose of any assets including fixed deposit receipts without prior approval of the securities regulator.
The BSEC will also appoint an auditor at its own cost to comb through the NBFI’s books.
Following the audit report, the stock market regulator may appoint an observer to Fareast Finance. The observer will submit a report on the 10th of each month on the previous month to the commission.
Earlier in September last year, the BSEC fined Fareast Finance Chairman MA Khaleque and director Rubaiyat Khaled Tk 10 lakh and Tk 5 lakh respectively for violating securities rules. The two sold 3.28 million and 26,777 shares respectively without prior declaration and evaded tax on those sales.
Established in 2001, Fareast Finance has a paid-up capital is Tk 164 crore and authorised capital is Tk 200 crore.
Each share of Fareast Finance, which was listed on the Dhaka bourse in 2013, closed at Tk 3.90 on Monday, which is the same as in the previous session.