a year ago

Business model keeps state-run sugar mills from making profit

Shyampur and Zeal Bangla mills bent under liabilities

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General shareholders of two state-run sugar mills have no possibility of getting any return in foreseeable future as the mills have been squeezed more and more every year under the weight of losses piling up.

The Dhaka Stock Exchange has no data on its website of any dividend given by the sugar manufacturers -- Shyampur Sugar Mills and Zeal Bangla Sugar Mills.

The stocks, however, rose in most sessions last year before sliding a bit and hit the floor, an indication of market manipulation, which gets easier for small-cap companies like these.

Shyampur Sugar Mills shut down in December 2020, having incurred losses for years. Production cost was high and it lacked capital needed to continue its operation.

The authorities could not tell if there is any way to resume operation overcoming the shortcomings within any stipulated time.

"The resumption of production will depend on the government's decision," said Arifur Rahman Apu, chairman of Bangladesh Sugar and Food Industries Corporation (BSFIC).

Similarly, Zeal Bangla Sugar Mills, though still in operation, has been counting losses. Its accumulated loss stands at Tk 5.59 billion pushing liabilities past assets by Tk 5.43 billion.

Company Secretary Mohammad Nazmul Huda explains the reasons behind the losses.

He said the corporation was aimed at supplying sugar to the market at lower prices. "The sugar corporation has to sell sugar at prices lower than the production costs."

The prices are set by the government.

The factors behind the persistent loss of sugar mills include the limited scope of utilising byproducts and reduced production capacity.

Modernisation, utilisation of byproducts, and scaling up of production are the key to making profits at sugar mills, Mr Huda said.

The business model goes against the obligation of listed companies that they have to share profits with public investors. The public stake is 36.24 per cent in Zeal Sugar Mills while the stake is above 47 per cent in Shyampur Sugar Mills.

Mr Huda admitted that general shareholders were getting nothing out of their investments in the company if the unusual stock price hike is not taken into consideration.

"But investors will get returns if the mills are modernised to expand their production capacity."

The auditor, however, has cast doubt on Zeal Sugar Mills' ability to continue operation, saying it is unable to run without support from the government.

On the benefits of the public shareholders, Arifur Rahman, from the corporation, said the listed companies had huge properties, including land, and if those were re-evaluated, their asset volumes would be much higher.

He did not explain how investors would reap any benefits from the hiked estimations of assets.

This was the backdrop to the stocks' rising, instead of declining last year.

The share price of Zeal Sugar Mills rose 61 per cent to Tk 188.40 each in the seven months through July 4, 2022. The stock later came down to the floor price of Tk 174.20 on August 4 that year and continued trading at the same price until the end of the year.

The price fell for 12 sessions in a row and finally closed at Tk 158 on Monday.

Out of operation, Shyampur Sugar Mills saw its price jump by a whopping181 per cent to Tk 131.60 between January and September 2021. It slid down to Tk 119.50 in the first week of July 2022.

The stock dropped to the floor price of 98.20 on August 3, 2022 and continued trading at the same price until year end. It closed at Tk 83.60 on Monday.

On the high stock prices that do not match the companies' performance, Mohammad Rezaul Karim, spokesperson of the Bangladesh Securities and Exchange Cooperation, said the stocks were illiquid.

"Transactions of the companies' shares are very limited. The regulator does not intervene in the price movement if the matter depends on demand and supply," he said.

It is unfathomable how the concept of demand and supply is applied to the companies or the stocks in their present form of existence.

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