Monospool Paper directors’ share sale raises questions

Stocks of Bangladesh Monospool Paper Manufacturing Company have skyrocketed in the last one year just after it had been relisted from the over the counter (OTC) market to the main board, all throughout riding on rumours and speculations. 

The small capital-based company with non-demat stocks, meaning those in the paper format, remained in the OTC market for many years for its substandard performance.

The stock market regulator allowed it to be relisted on some conditions, including one that its directors could not sell shares.

The trading of the shares in the main market commenced from June 13, 2021. Since then, its stock soared 394 per cent to Tk 273 from Tk 55 as of February 2022.

Last month the directors starting selling shares taking approval from the stock market regulator.

SinceJune 13, its directors have announced in phases to sell a total 4.46 lakh shares, which is 4.75 per cent of its total shares.

This includes 2.09 lakh shares which Magura Group, one of the corporate directors of the company, yesterday, expressed the intention to sell at the prevailing market price through Dhaka Stock Exchange in the next 30 working days.

The group holds 8.09 crore shares of the company.

Md Mustafizur Rahman, company secretary to the Monospool, said the regulator relaxed the condition because the directors had assured that they would repay the company's bank loans through this sale of shares.

With the loan repayment, both the company and shareholders will benefit, he added.

However, a top official of a merchant bank, preferring anonymity, said directors were an entity separate from a company.

So how directors will repay a company's loan is not clear in accounting standards, he said.

This will be possible only if they donate the share sale's proceeds, otherwise, the directors will benefit personally, he said.

"In the real world no director donates funds to a listed company," he added.

Even if they donate the money, it is not acceptable as now the share price is inflated, meaning it contains more of people's money than of directors, so any donation would in effect be that of people's money, he explained.

The company has a paid-up capital of Tk 9.3 crore, long-term loans of Tk 42 crore and short-term loans of Tk 23 crore, according to its unaudited financial reports.

Despite the huge amount of bank loans, the company showed that it had made higher profits in the period from July 2021 to March 2022 from that in the same period of the previous year.

Its profits rose to Tk 2.54 crore in the recent nine months whereas in the previous period it was Tk 26 lakh, according to the reports.