Dragon Sweater and Spinning Ltd, a listed company at Dhaka Stock Exchange, spent Tk 21.43 crore of its initial public offering fund deviating securities rules, a special audit conducted by BSEC found.
The commission based on the special audit has already started enforcement proceedings against the entity, BSEC officials told New Age on Monday.
The special audit found that the Dragon Sweater and Spinning had spent more than 53.60 per cent of its initial public offering fund through cash transactions in violation of securities rules.
In 2015, Dragon Sweater through IPO floated shares worth Tk 40 crore for machinery import, civil construction of building, installation and transportation of spare parts, to meet the working capital requirement and IPO expenses.
The RMG company in its IPO prospectus said that the machinery import would cost Tk 15.82 crore, civil construction of building Tk 18.31 crore, installation and transportation of spare parts Tk 1.34 crore to meet the working capital requirement of Tk 2.97 crore and IPO expenses worth Tk 1.76 crore.
As per a condition imposed by the BSEC under section 2CC of the Securities and Exchange Ordinance, 1969, ‘The fund collected through public offering shall not be utilised prior to listing with stock exchanges and that utilisation of the said fund shall be effected through banking channel, through account payee cheque, pay order or bank drafts.’
Dragon Sweater, however, in its IPO fund utilisation report showed that the entity spent Tk 17.89 crore for building construction in cash, the special audit revealed.
Besides, the entity also showed that it had spent Tk 2.55 crore as working capital, Tk 87.12 lakh for import of machineries, Tk 12.42 crore to meet IPO expenses in cash, the report said.
Dragon Sweater and Spinning managing director Mostafa Golam Quddus told New Age that the company did nothing wrong in utilising the IPO fund.
‘Payment for the building construction labour was the main reason behind the utilisation of IPO fund in cash, while some other unavoidable cash payments were among other reasons,’ he said.
Quddus also said, ‘I hope that the commission and the auditor were fully satisfied with our explanation in this regard.’
A BSEC official said that the commission imposed the condition of using IPO fund through banking channel with a view to prevent any sort of misuse of IPO funds.
Spending IPO fund through cash transactions raises question over the fair use of money, the official said.
If the capital market investors’ money was not utilised properly, the company would fail to deliver returns to the investors in future, the official said.
There have been allegations against a number of companies for diverting IPO fund using different mechanisms.
Another senior BSEC official told New Age that the commission had already initiated enforcement proceedings against the entity regarding the violations which were identified by the special auditor.
The commission will now issue show cause notice to the company seeking explanation about the violation, he said.
The commission will take further move based on the reply and depositions of the entity, the official said.
Earlier in 2014, the capital market regulator fined Dragon Sweater Tk 5 lakh for providing false information about acquisition of land in the initial public offering document.
The regulator also fined Dragon Sweater’s issue manager First Securities Services Ltd Tk 5 lakh for not checking the information before applying to the commission for IPO.
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