Regent Textile directors asked to return IPO money diverted under investment guise

Regent Textile Mills has been ordered to withdraw its investments in its associate company Legacy Fashion in 30 days from Tuesday.

The company's five directors, including the managing director, will be fined Tk 200 million each for failure to comply with the directive, according to a press statement issued by the securities regulator.

The Bangladesh Securities and Exchange Commission (BSEC) decided the punitive measure on Tuesday based on information gleaned earlier.

In its IPO utilisation report, Regent Textile had claimed that it invested Tk 474.33 million in a new RMG project -- Legacy Fashion - and Tk 750.44 million was spent on the expansion of the company.

However, the BSEC findings show that Regent Textile had transferred Tk 800 million from its IPO proceeds of Tk 1.25 billion to buy shares of Legacy Fashion, whose owners are sponsors of Regent Textile.

"They were common directors," said BSEC spokesperson Md. Abul Kalam.

That means the entire fund of Tk 800 million went into the pockets of the directors of Regent Textile.

"The intention was to embezzle investors' money. The IPO fund was supposed to be utilised for the company's expansion," said Mr Kalam.

He said it appeared that the owners of Legacy Fashion had handed over their ownership to shareholders of Regent Textile but it was unlikely for them to do so if the company had potential.

Moreover, the shares of Legacy Fashion were sold at NAV of the company, which risked being inflated given that non-listed companies' asset valuation is not well regulated.

The investment made with shareholders' money did not add any value to the performance of Regent Textile Mills.

Regent Textile, which had reported profits before the acquisition of Legacy Fashion, turned into a loss-making entity in FY20.

The yearly loss jumped from Tk 39 million in FY20 to Tk 208 million in FY21, as reported by the company.

No financial statement has been made available since FY22.

The DSE found the company closed in September 2023 and the website of the prime bourse does not have any information about the company's operation from 2023 onwards.

All the while, shareholders of Regent Textile Mills have been deprived of returns on their investments. Their principal investments are also at stake.

The BSEC has asked the company's directors to refund Tk 900 million since the additional Tk 100 million is considered opportunity costs of shareholders' money.

The directors, who are to comply with the order, are Md. Yakub Ali, Md. Yasin Ali, Tanvir Habib, Mashrur Habib, and Salman Habib.

At a meeting on Tuesday, the securities regulator also decided to impose a penalty worth Tk 100 million on Vanguard Asset Management Ltd. (VAML) for its failure to withdraw its investment in non-listed company AFC Health in 30 days from Tuesday.

The VAML made an investment of Tk 40 million in AFC Health from the portfolio of Vanguard AML BD Finance Mutual Fund One.

As per the securities rules, a pooled fund is not allowed to invest in a non-listed company.

Indian Company Forties had invested in AFC Health that got the regulatory approval to go public in 2020.

But soon after the approval, the regulator had cancelled the company's IPO proposal following a request by Forties on the basis that the former had disseminated misleading information.

The VAML has been asked to deposit Tk 90 million, with the additional money deemed as compensation for the financial damage done to the unitholders of the pooled fund.

The BSEC has also fined Bangladesh General Insurance Company, trustee of the fund managed by the VAML, Tk 10 million as it failed to secure interest of the unitholders.

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