The stockmarket regulator's decision to allow Ring Shine Textiles to raise Tk 150 crore has come under fire from analysts, who termed it an ill-thought-out step given the performance of such companies thus far.
“This is too huge an amount to be raised when there is liquidity crisis in the market,” said the managing director of a merchant bank requesting anonymity to speak candidly on the matter.
It would be the highest amount raised by a textile company.
Besides, textile companies that have huge paid-up capital have performed poorly, the managing director added.
The paid-up capital of Ring Shine Textiles after raising the funds from the market would be Tk 435.05 crore, which is the second highest in the sector.
So far, seven textiles companies with more than Tk 200 crore in paid-up capital got listed and all are trading at face value or lower than that.
The companies are Alif Manufacturing, C&A Textiles, Familytex, Far East Knitting, Generation Next, Maksons Spinning, and RN Spinning Mills.
Only Far East Knitting is trading at more than its Tk 10 face value and the rest are trading between Tk 3.40 and Tk 9.40.
C&A Textiles has already been downgraded to the junk category while Familytex and Maksons Spinning were sent to the `B' category for their bad performances.
The high capital-raising textile companies could not generate matching earnings, so they ended up being a burden on investors' portfolios, said market insiders.
Conversely, the textile companies that are performing well and paying good dividends like Square Textiles and Envoy Textiles have much lower paid-up capital than Ring Shine.
Square Textiles' paid-up capital is Tk 197.25 crore and Envoy Textiles' Tk 167.73 crore.
Some of the textile companies came to the market when they were not in a good position, said Abu Ahmed, a stockmarket analyst.
They used the capital from the market to pay back bank loans, so that they can free up their mortgaged assets.
“Historically, textile companies behaved very badly with stock investors, so the regulator should have considered it before giving them permission to raise such a huge amount,” said Ahmed, also a former chairman of the Dhaka University's economics department.
Contacted, a top official of the Bangladesh Securities and Exchange Commission said Ring Shine got the approval solely on the basis of its performance.
“But, we will have to think now as the trend is not good.”