Keya Group plans to merge three of its liability plagued, non-listed associate companies with its listed firm to implement its new business plans.
This entails that the liabilities will be transferred to the listed company, which has a public stake of 66.38 percent.
In other words, the three non-listed firms will indirectly be listed on the stock exchange, as the amalgamation will take place through the exchange of new ordinary shares.
The owners chalked the plan as Bangladesh Securities and Exchange Commission (BSEC) earlier rejected the initial public offerings of two of the three associate companies on the grounds of a negative report from the Credit Information Bureau of the central bank.
A proposal for the amalgamation of Keya Knit Composite, Keya Cotton Mills and Keya Spinning Mills with the listed Keya Cosmetics is now at the High Court for approval. The board of Keya Cosmetics took the decision to merge in a meeting in October last year.
If approved, the amalgamation may have a negative impact on the earnings, profitability and dividend distribution of Keya Cosmetics.
The merger will also give an opportunity to the sponsors of the three companies to sell their stakes in the secondary market after the mandatory lock-in period is withdrawn.
Opposing the merger, Sonali Bank in a letter in January requested the stockmarket regulator not to give an approval without getting a no-objection certificate from the bank.
The three mills have more than Tk 800 crore loans in different banks, according to the financial statements of the companies.
Earlier in 2011, Keya Detergent, a listed company, and non-listed Keya Soap Chemicals were merged with Keya Cosmetics.
Abdul Khaleque Pathan, now chairman of Keya Group, said the amalgamation was part of a new business plan.
“We want to list the companies indirectly, as our IPO proposals were not approved by the regulator.”
On the transfer of liabilities, he said not only the liabilities, the assets, too, will come under Keya Cosmetics.
“The shareholders will not be affected by the merger, rather, they will be benefited, as all the companies will run under one management.”
On the default loans with Sonali Bank, he said there was a misunderstanding. “The bad loans are being rescheduled.”
The financial statements of the companies were prepared by a chartered accountant listed under BSEC, he said. “There are no inflated facts and figures.”
Even though there is not much for the stockmarket regulator to do on the merger, the process requires approval.
A BSEC official said, in the interest of the general investors, the commission may appeal before court when Keya Cosmetics will apply for a capital raise.
In May 2010, BSEC had fined all members of the board of directors of Keya Cosmetics for allegedly manipulating the company's stock price by circulating rumours that a big investment from Sri Lankan entrepreneurs was in the pipeline.
Pathan, the then managing director of Keya, was fined Tk 5 crore and five other directors Tk 5 lakh each for the alleged infraction that took place in 2008.
A probe by the regulator found that the company had manipulated its share prices by disseminating news that it would sell more than one crore shares to Hamus, a Sri Lankan company.
Following the rumour, share prices of the company had soared dramatically and a corporate sponsor of the company made hefty profits by selling the stake.