Aziz Pipes’ production closure raises questions

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Aziz Pipes shuts factory for financial crisis
Aziz Pipes shuts factory for financial crisis

Aziz Pipes’ production closure raises questions

 

Closure, resumption, and closure. This is what described Aziz Pipes in the last 10 months in a nutshell.

What seems to be a simple course for a company has not been that simple for the investors in the Dhaka Stock Exchange, as the directors of the listed plastic pipe and door producer seemed to have benefited from the price swings while retail traders found themselves on the receiving end.

 

When Aziz Pipes announced the closure of its operations on January 11, the company’s stock price plummeted to Tk 87 from Tk 136 in a span of three months. It rebounded to Tk 165 after the company said on August 22 that it would resume production from October 1.

But when it suspended production for the second time this year on Monday, the stock slipped to Tk 96.4 and further to Tk 88.8 on Tuesday, raising questions whether the announcement stemmed from fundamental reasons or was a part of a ploy to manipulate the stock price.

“The suspicion is much deeper because a huge price movement occurred a few days before the announcement,” said a top official of an asset management company, preferring anonymity.

Normally, a sharp price swing just before a regulatory filing indicates that there was insider trading, he said, adding the regulator should investigate.

Insider trading involves trading in a public company’s shares by someone who has non-public, material information about the stock, and this is illegal. The disclosure related to the resumption of production came on August 22, but the share of the company rose to Tk 131 from Tk 89 since July 7.

Before plunging on Monday, the stock had risen to as high as Tk 165 on September 19, data from the DSE showed.

The company closed the factory’s production activities because of a lack of working capital, complexity with bank loans, financial crisis, loan liability, raw material crisis, and lack of reserves, according to a regulatory filing on the exchange.

The shareholding of the directors of the company dropped during these periods so the question came to the fore whether the directors benefited from the share price movement, the asset manager added.

On June 30 of 2020, the company’s sponsors held 33.83 per cent shares of Aziz Pipes. It reduced to 23.93 per cent on August 31 this year.

Here, the sponsors have breached laws as they did not give any announcement about the sales though it is mandatory as per the Corporate Governance Code of 2018.

The code stipulates that every sponsor or director of a company must submit a written report to the exchange and the Bangladesh Securities and Exchange Commission about their intention to buy or sell. The exchange will disseminate such information.

“ICB is our director, and it sold shares, but it said that they don’t need to give any disclosure about the share sale,” said AHM Zakaria, company secretary of Aziz Pipes, referring to the state-run Investment Corporation of Bangladesh.

“I do what our directors instruct me to do,” he said.

Abdul Mannan, a retail trader, said he had bought shares of Aziz Pipes at a market price of Tk 154 after it disclosed its plan to restart production.

“Suddenly, the stock started to fall. Now, with the announcement of the shutdown, the stock fell further, and I incurred losses. This is upsetting,” he added.

As the raw material price surged, the price of the products manufactured by Aziz Pipes doesn’t cover the production cost, he said. “So, we decided to close the factory,” said Zakaria.

A senior official of the BSEC said the commission would look into how the directors sold shares without giving any disclosure and whether any insider trading took place.

In the 2020-21 financial year, Aziz Pipes incurred a loss of Tk 43.9 lakh, after logging a profit of Tk 13.91 lakh a year earlier, according to the company’s financial report.

Due to the loss, the company declared no dividend for shareholders. It provided a one per cent cash dividend in 2019-20.

The company has defaulted on its payments to loans with Dutch-Bangla Bank Ltd and Uttara Bank.

Shares of Aziz Pipes closed 4.5 per cent higher at Tk 92.80 on the Dhaka Stock Exchange yesterday.

 

 

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