Home ›› 24 Oct 2021 ›› Front
33 listed companies in the capital market are at risk with holding Tk7,914 crore negative reserves. Most of the companies are in bad situations. Market analysts suggest shifting these companies from main to alternative board.
Usually, negative reserves in a balance sheet deficit that a company has accumulated losses. A company has been facing losses in the current year or of earlier years. It expresses poor performance of the business.
Besides, reserve is the profit achieved by a company where a certain amount of it is put back into the business which can help the business in their rainy days.
N.K.A Mobin, Managing Director & CEO of Emerging Credit Rating Ltd told The Business Post about the negative reserve that, even if the reserves are negative, if the cash flow is good or if the recovery is good then a company is not at risk.
However, if the business is bad or does not do well, if the loan is not arranged in time, the company is at risk of negative reserves.
Or because of such a situation the reserve becomes negative.
According to the Dhaka Stock Exchange (DSE) latest data, non-bank financial institute International Leasing holds Tk2,742 crore negative reserve.
The company has sunk due to various irregularities and corruption in the hands of controversial PK Halder. At the same time, the company disappointed its shareholders. The situation is similar to another seven listed non-bank financial institutions. The amount of negative reserves of these institutions ranges from Tk29 crore to Tk770 crore.
In this context N.K.A Mobin said, the reason why financial institutions have so many negative reserves is that they have not been able to recover the loans and advance on time. That means those companies are incurring losses.
Meanwhile, the reserves of five textile sector’s companies are also negative. Of this, RN Spinning has the highest amount of Tk440 crore. A fire broke out in the company’s factory at Cumilla EPZ in April 2019, causing a loss of more than Tk600 crore.
Besides, there are 13 insurance companies which have zero reserves. In between the board of Fareast Islami Life Insurance has been reconstituted due to irregularities and corruption.
On the other hand, after the allegation of bribery in the name of IDR chairman Mosharraf Hossain, the insurance sector regulator has appointed an administrator in Delta Life Insurance.
Former Professor of Dhaka University and market analyst Abu Ahmed told The Business Post that, with good reserves companies can pay cash dividends even if they make a loss.
However, the destiny of a company is borrowing whose reserve is negative. And if a company continues to borrow, it will not be able to do well.
While most of the negative reserve holder companies are in bad situations, there are also some good companies. Analysts say, these companies deliberately show bad conditions because of not paying dividends.
These companies showed a lot of performance when they came to the market. After that sponsors of the companies sold their shares and did not work for better performance.
As a result those companies are making losses day by day. These companies should shift to an alternative trading board (OTC), or the regulatory body can liquidate if it wants.
