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Debt defaults, low utilisation threaten PDL survivability

Staff Correspondent
26 Dec 2023 21:29:51 | Update: 26 Dec 2023 21:29:51
Debt defaults, low utilisation threaten PDL survivability

Debt defaults and underutilisation of factory production capacity is threatening the future of listed textile company Pacific Denims Ltd (PDL).

This issue came to light through the auditor’s opinion, published on the Dhaka Stock Exchange (DSE) website on Tuesday following a review of Pacific Denims Ltd financial report for the year ending on June 30.

A qualified opinion, typical after a professional audit, indicates that the information provided may be limited in scope or that the company's adherence to generally accepted accounting principles may be questionable.

This company has disclosed that the long-term bank loans and short-term bank borrowings are secured by the personal guarantee of the directors, the corporate guarantee of Pacific Group, and a pair-pass sharing agreement between banks on fixed and floating assets of the company.

The auditor points out, “However, we did not receive any documents regarding the bank guarantee. Additionally, it was observed that the company is in default on loan payments.

“The only documentation provided was an online copy of the bank statement, and no bank balance confirmation was obtained.”

The auditor further mentions that the company reported revenue of Tk 141.45 crore and raw material purchases of Tk 106.33 crore, for which the management provided zero VAT returns and submitted no related documents at all.

As there is zero VAT, it can be assumed that very little of the company's production capacity is being used. As a result, the company is facing a growing threat of becoming a defaulter on long-term and short-term loans.

Emphasis of matter by auditor

The company reported cash in hand of Tk 12.35 crore, and they could not provide a third-party physical verification report. The company indicates the existence of 14 bank accounts, while only seven bank statements were provided during the audit process.

Following communication with the management, it was confirmed that the additional bank statements were dormant, as no transactions had occurred in those accounts.

PDL on BSEC's suspicion list

On February 20 this year, the Bangladesh Securities and Exchange Commission (BSEC) smelled revenue manipulation at Pacific Denims Ltd, as the market regulator suspects that the apparel manufacturer has been showing inflated sales for years.

Pacific Denims Ltd, which is involved in manufacturing, dyeing, weaving, and finishing denim fabrics, was incorporated in 2003 and got listed on the bourses in 2017.

The revenue of the company has been decreasing gradually since its listing on the bourses. The firm declared a 1 per cent cash dividend for its shareholders in the last fiscal year, whereas in the fiscal year 2020, the company also gave a 10 per cent cash dividend to the shareholders.

In 2017, the company raised Tk 75 crore from the capital market to repay loans, construct buildings, and purchase machinery for business expansion. Its paid-up capital is Tk 183.55 crore, and its authorised capital is Tk 200 crore.

As of November 2023, of the company’s total shares, sponsors and directors held 30.12 percent, institutional investors 11.39 per cent, and general investors 55.48 per cent, respectively.

On Tuesday, each share of the company ended at Tk 15.70 on the DSE.