BSRM cooks the books for its chairman to make quick bucks
Regulators looking into charges against the steel giant
Jagaran Chakma and Shamsuddin Illius
Bangladeshs steel giant BSRM Ltd stands accused of manipulating financial statement of the company to jack up shares prices for a certain period to help one of its sponsor shareholders sell stocks at higher rates. One of the brokerage houses in a letter to regulator Bangladesh Securities and Exchange Commission (BSEC) complained that Bangladesh Steel Re-rolling Mills Limited manipulated its earnings by lowering the tax provision in the first quarter which helped surge in its stock prices. Once the price started soaring, one of its key sponsors took the opportunity of selling heavily as much as 26.27 lakh shares.
The share price of BSRM Ltd during April-May 2016 was ranging from Tk 150 to Tk 180. After the sell-off and when the EPS was shown at Tk 0.51 on October 9 this year the share price of BSRM Ltd came down to Tk 140 from Tk 180. However, once his sale was complete, the company seems to have adjusted its books of accounts by provisioning the taxes which brought down its earnings per shares (EPS) from Tk 2.52 to Tk 0.51.
Speaking to The Independent, BSEC Executive Director Saifur Rahman has said the allegation against BSRM Ltd is grave. Action will be taken against the company, if financial irregularities are found.
The complaint said, EPS (earning per share) of BSRM Ltd as per half yearly statement for January to June 2016 was high i.e. Tk 2.52 when deferred tax provision was low in the first quarter and the EPS was low i.e. Tk 0.51 when deferred tax provision was high in the second quarter of 2016. EPS is the portion of a companys profit allocated to each outstanding share of common stock. EPS is generally considered to be the single most important variable in determining a shares price. It is also a major component used to calculate the price-to-earnings valuation ratio.
BSRM Ltd is a concern of Chittagong-based BSRM Group, a leading steelmaker, with a market share of about 20 percent. The company started its journey in 1952 and since then it has been pioneering the steel industry in the country.
The complaint also said BSRM Ltds deferred tax provision of Tk 7.7 crore was charged in the first quarter and Tk 22.10 crore was charged in the second quarter in 2016.
Stock markets insiders said through charging lower provision for deferred tax in the first quarter EPS of the share was kept intact intentionally so that the sponsor shareholders can sell their shares at high prices. According to a notification posted on Dhaka Stock Exchange website on 25 April 2016, one of the corporate sponsors of BSRM Ltd, H Akbar Ali and Company Limited, expressed intention to sell 26,27,011 shares at prevailing market price within next 30 working days and the sale of the shares was completed by 11 May 2016.
H Akbar Ali and Company Limited is owned by Alihussain Akberali, who is also BSRM Group chairman. Market insiders said it was evident that the corporate sponsor influenced the management of BSRM Ltd to calculate arbitrary EPS of the company in the first quarter in order to get high prices of the shares intended to sell in the market.
The complaint said the market price of the share of the company (BSRM Ltd) was affected following publication of EPS. As a result, general investors bought large quantities of shares seeing the higher EPS in the first quarter and suffered huge losses in their equity in the second quarter when EPS of the company fell down to Tk 0.51.
According to a note in the financial report, the government imposed tax on the total sale of shares under Clause 16 C.C.C of The Income Tax Ordinance, 1984. BSRM Ltd filed a writ petition before the High Court against the move. For this, BSRM Ltd did not pay taxes in 2010, 2011, 2012 and 2013. Recently, the High Court gave its verdict against the petition of the company, and it had to pay tax arrears. As per rules of accounting, the company was supposed to have kept saving the tax amount, even though it was not paying the tax because of the writ petition. Had BSRM Ltd done so, it would have been easier to pay tax arrears and the net profit and EPS would do not have fallen.
BSRM Ltd authorities denied the allegation. They claimed that they had prepared the financial report as per the law and rules, and not adopted unfair means. When contacted, Tapan Sengupta, executive director of BSRM Ltd, said: If such fraud has taken place, let it be investigated, whats the problem? We dont have any problem. BSRM Ltd has never been involved in any fraud.
