Fu-Wang Ceramic Industry Ltd had declared 1 percent cash dividend for the 2018-19 fiscal year, which had been approved by its shareholders in the last annual general meeting (AGM).
But the company could not disburse the pledged dividend because of an extreme cash shortage.
On Monday morning, Fu-Wang Ceramic shares at the Dhaka Stock Exchange (DSE) nosedived to Tk6.6 each — the lowest since 2008.
This happened because the DSE announced that the company has been put in the 'Z' category. The company failed to submit its dividend disbursement compliance report on time.
The stock exchange treats companies that do not pay dividends, or are not operational, as 'Z' category stocks. Companies that pay at least 10 percent dividend are placed in the 'A' category, and any stock that pays above 1 percent but less than 10 percent dividend are put in the 'B' category.
The cash crisis was inevitable for Fu-Wang Ceramic because "bankers in recent months kept them under too much pressure to clear all dues, and the company failed to defer any repayment,'' said Abdul Halim Thakur, company secretary of the listed ceramic manufacturer.
However, the company still claims that it will try to pay the pledged dividend for last year.
"We are not giving up. We are looking for cash to pay the dividends approved in the last AGM," said Halim Thakur.
Against a paid up capital of over Tk136 crore, 1 percent dividend will account for Tk1.37 crore in cash from the company that made an annual profit of more than Tk8 crore in the 2018-19 fiscal year.
Why the cash crisis?
Abdul Halim Thakur told The Business Standard that in the last fiscal year the company had an expansion project to set up a third production line and a digital printing machine. They borrowed Tk16.77 crore from banks at 13 percent interest for that purpose, and that inflated total bank liabilities to Tk27.66 crore.
The company secretary said there was also pressure to pay previous loans, and the company had no option but to repay a total of Tk13.45 of the previous liabilities. That created havoc with the company's current accounts.
The ceramic company
Fu-Wang Ceramic Industry Ltd was formed in 1995 and started commercial production in 1996. It became public in 1998 with listings at both the bourses of the country. It continued manufacturing and marketing ceramic and homogeneous floor and wall tiles.
The local market, with double digit growth over a decade, is estimated to have attained an annual size of over Tk6,000 crore at present. Industry association data suggests that over five dozen local manufacturers cater to around 85 percent of the market.
On top of that, Bangladeshi manufacturers export ceramic products to around 50 markets across the world, that earns foreign currency equivalent to Tk586 crore.
Fu-Wang had been a big name in the list of exporters. But in recent years, it is stuck within a range in sales and profit.
The company had been increasing its shares by issuing 10 percent bonus shares each year instead of paying cash dividends.
This was an exceptional season for its shareholders because of the declaration of a cash dividend. But, nothing was gained because of non-disbursement. On top of that, the category slump pushed the stock price down to a 12-year low.
Fu-Wang Ceramic posted an earnings per share (EPS) of Tk0.22 for the first half of the ongoing fiscal year, down from Tk 0.30 for the same period in the previous year.
The company had an annual EPS of Tk0.59 in the last fiscal year.
The net asset value against each share is now Tk11.37 for this company.