Keya Cosmetics becomes a textbook case of how a high-flying company falls from grace in fits and starts.
Even when the manufacturers of hygiene products and toiletries were making higher profits thanks to increased demand due to the coronavirus pandemic, Keya Cosmetics remains an exception and brings no good news for its shareholders.
Reckitt Benckiser Bangladesh, a company of almost the same kind, witnessed a 54 per cent leap in its profits and 29 per cent jump in sales in the first half of 2020.
Keya Cosmetics, which had provided 10 to 50 per cent dividend to its shareholders since its listing with the bourses in 2001, has of late been making no disclosures that could be a sight for sore eyes.
Incorporated in 1996, the company has been announcing repeatedly to its shareholders that its sponsors, including Chairman Abdul Khaleque Pathan, want to offload their shares.
As a result, the sponsors' shareholding dropped to 46.27 per cent on 30 June 30, from 62.77 per cent on 30 June 2017. Now, the sponsors cannot even sell their shares due to a poor demand.
In an effort to reduce costs, the company also shifted its corporate office from Banani to Gazipur, adjacent to its factory.
As the company has not been publishing its quarterly reports since the 2016-17 financial year, the stock market regulator fined its directors Tk 1 lakh each in 2018.
In spite of that, the cosmetics and toiletries maker did not bring out any quarterly report until now, except making a sudden announcement to provide 10 per cent stock dividends for the year that ended on 30 June 2018.
After that, it had again gone into hibernation.
On top of that, Financial Reporting Council (FRC), the regulator for establishing standards of financial reports in Bangladesh, found that Keya Cosmetics announced dividend on the basis of fake earnings.
"Its balance sheet was overvalued by more than Tk 1,000 crore and the amount might be laundered," said Md Sayeed Ahmed, executive director of the FRC.
Keya Cosmetics exported products to its own company in Europe, but the export proceeds have yet to arrive.
"Meanwhile, the earnings have been shown in its profits, so we suspect the money might have been laundered."
When sponsors of a company want to sell their shares they tend to overvalue their profits and give stock dividends that are provided in the form of shares instead of cash.
The FRC asked the company in February last year about the over-valuation of its profits, but is yet to get any response.
The company did not hold annual general meetings in the last two years showing lame excuses, though listing regulations bind all companies to hold AGM regularly, Ahmed added.
Against the backdrop, stock investors who own 44.48 per cent shares in the company have been put in a tight corner.
"Why a once-reputed company like this plunged into such a bad situation should be investigated by the Bangladesh Securities and Exchange Commission," said Md Masud Alam, a stock investor.
The company won the national export trophies in 2002-03, 2003-04 and 2004-05.
"I think it might have fallen into trouble due to amalgamation with its other non-listed ventures," Alam said.
Keya Cosmetics amalgamated with Keya Detergent and Keya Soap Chemicals in 2010 and then with three other companies -- Keya Spinning Mills, Keya Cotton Mills, and Keya Knit Composite -- in 2015.
Before the amalgamation in 2010, Keya Cosmetics' earnings per share was Tk 5.26, which dropped to Tk 1.55 in 2013.
After 2015, the company became irregular in publishing annual reports and holding AGMs.
Ahmed, who is also a former deputy managing director of Pubali Bank, found four reasons behind the fall of the company.
Firstly, the company had no corporate culture and it was run by relatives of the company chairman.
Secondly, the company fell into problems in 2010 when cotton prices in the world market became volatile and the company purchased a huge amount of cotton at a very high price.
Thirdly, the company borrowed a huge amount of money from banks so its debt burden was skyrocketing along with interest.
The company's long-term loan was Tk 859.85 crore and short-term loan Tk 634.45 crore, according to its annual report for the 2016-17 financial year.
And fourthly, the company's chairman stayed abroad for a long time and so local production was not taken care of properly.
Some of the products of Keya Cosmetics had won the hearts of customers and these were among the top selling products even a few years ago. But now, their demand has fallen drastically, said a top official of a leading cosmetics producer, requesting anonymity.
The biggest blow came when its chairman was arrested by the Anti-Corruption Commission on charges of loan fraud involving Tk 110 crore. The loan was taken for its concern Keya Yarn Mills from state-owned Bangladesh Krishi Bank.
Pathan, now on bail, did not respond to phone calls and text messages from The Daily Star yesterday.
A top official of the BSEC said they already fined the company for not publishing financial reports.
"The company is under the scanner. Our team is working on it as it is breaching rules again and again," the official said, asking not to be named.
Stocks of Keya Cosmetics, whose paid-up capital is Tk 1,002 crore, closed at Tk 3.10 in the Dhaka Stock Exchange yesterday, up 6.7 per cent from the previous day.