Kattali Textile to face the music for money laundering

Kattali Textile has laundered money from the funds raised through its 2018 IPO, and now the stock market regulator has handed its investigation report to the CID for actions under the Money Laundering Prevention Act 2012.

A primary investigation by the Bangladesh Securities and Exchange Commission (BSEC) identified the top brass of Kattali Textile as being involved in fund misappropriation.

The commission investigated overall business activities of the company and detected serious violations of law in IPO fund utilisation and financial statements, said Md Rezaul Karim, BSEC spokesperson and executive director.

The Criminal Investigation Department (CID) will dig into the matter further and take action under the 2012 act, added Mr Karim.

Company secretary of Kattali Textile Fazlul Hoque refused to make any comment when contacted by The FE by phone.

Fine imposed for giving false information

Kattali Textile raised Tk 340 million by issuing primary shares in 2018 for business expansion. While the fresh fund was expected to help the company to do better, its business started to decline for irregularities.

The company has failed to use the initial public offering (IPO) proceeds although six years have already passed. So, the projected business expansion has not happened, depriving investors of their expected returns.

The IPO fund was supposed to be fully utilized by October 2020.

The Chattogram-based garment exporter reported a loss of Tk 135 million in total for the two financial years to FY24.

It provided false information about the use of IPO proceeds to the Dhaka Stock Exchange in February 2019. The securities regulator fined Kattali Textile in 2020 Tk 25 million for providing fake bank certificates.

Having failed to utilize the IPO funds within the stipulated time, the company applied for a 12-month time extension up to October 2021.

Though the regulator did not give its go-ahead for the time extension, the company continued to show utilization of the funds.

The company sought another 12-month extension until October 2022 for making use of the IPO proceeds fully though its plea had not been accepted in the first time.

The regulator rejected the request for the second time too.

Kattali Textile reported completing the fund utilisation in September 2023, without regulatory permission, in violation of securities laws, market analysts said.

In the meantime, the BSEC received investors' complaints that the company had not disbursed dividends declared for FY21.

Special auditor assigned to dig up facts

In February last year, the stock market regulator appointed Islam Jahid & Co. as special auditor of Kattali Textile to find out the reasons behind its repeated failure to use the IPO funds and to scrutinize financial statements of FY20 to FY22.

The issuer or its directors, or any persons related to the audit were required to furnish or produce documents alongside providing all-out support for the audit.

The company, however, did not cooperate with the special auditor. The management of the company did not provide the necessary documents regarding realisation and collection of revenue.

Instead of helping the auditor, Kattali Textile sought time again and again, putting up excuses.

In April 2023, the company requested the regulator to delay the audit for at least 120 days, citing sickness of one of its key team members.

Then the BSEC extended time and instructed the company in June 2023 to ensure full cooperation with the auditor.

In early July of 2023, Kattali Textile further requested for a 90-day time extension on the pretext that its managing director was about to go abroad for treatment.

This time, the regulator extended time till July 31, 2023 for the submission of an audit report, saying that no further time extension would be allowed.

At the end of July 2023, the BSEC found that the auditor was yet to start the audit for being unable to enter the company premises. The securities regulator said it was evident that the issuer company was avoiding the instructions of the commission.

Due to non-cooperation with the special auditor, the securities regulator in February this year penalised four top officials of Kattali Textile, including its chairman, with fines worth Tk 40 million upon hearing from the accused.

2018 listing

In June 2018, the BSEC approved the company's IPO application despite objections from the Dhaka Stock Exchange (DSE).

The company was allowed to collect Tk 340 million apparently to purchase capital machinery, repay bank loans, and install an electric transformer.

According to a DSE observation report, Kattali Textile could not provide documentation to back up its financial claims before floating the IPO.

For example, in its FY17 prospectus, the company reported sales of Tk 595.3 million.

When the DSE asked for supporting documents, such as bank statements, VAT and tax records, and documents related to Letters of Credit (LC), the company failed to show those.

Accordingly, the DSE's Regulatory Affairs Committee raised concerns and concluded that Kattali Textile was not eligible for IPO approval.

Market operators say irregularities in the IPO approval process as in the case of Kattali Textile eroded investor confidence severely.

Stock performance

After remaining stuck on the floor price of Tk 23.7 per share for 18 months until January this year, the stock of Kattali Textile started to decline as the price restriction was withdrawn.

The stock plunged below face value of Tk 10 each share to close at Tk 8.7 per share on November 25. It rose 3.26 per cent to close at Tk 9.5 per share on the DSE on Monday.

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