The Bangladesh Securities and Exchange Commission (BSEC) may cancel Royal Footwear’s Qualified Investor Offer (QIO) to raise Tk 12 crore from the capital market following concerns over inconsistencies and questionable information in the company’s financial statements.

Royal Footwear received approval for the QIO at the BSEC’s 1,020th commission meeting on July 14. However, subsequent scrutiny has raised questions over the company’s financial records, with the regulator also considering strict action against the company.

According to a director of the Dhaka Stock Exchange (DSE), the BSEC chairman has expressed dissatisfaction over Royal Footwear’s financial statements and is taking a firm position on both cancelling the QIO and taking punitive measures.

The DSE director said the company was previously considered ineligible for stock market listing, prompting the DSE to reject its application. Royal Footwear later pursued fundraising through the Chittagong Stock Exchange (CSE), but the issue came to the BSEC chairman’s attention before final approval.

Royal Footwear plans to raise Tk 12 crore through the QIO, including Tk 2 crore for raw materials, Tk 1.67 crore for spare parts, Tk 8 crore for repaying bank loans and Tk 33 lakh for QIO-related expenses.

However, the company had Tk 20.25 crore in cash and cash equivalents as of December 31, according to its financial statements. It had Tk 19.54 crore in cash and equivalents as of June 30 of the previous year.

The availability of substantial cash has raised questions about the rationale for raising funds from the capital market to repay loans.

Royal Footwear’s inventory position has also drawn attention. Its total inventory stood at Tk 50.92 crore as of December 31, including Tk 43.27 crore in raw materials.

Despite this, the company plans to spend another Tk 2 crore on raw materials from the QIO proceeds.

In the first six months of fiscal 2025-26, the company recorded sales of Tk 52.91 crore against inventory of Tk 50.92 crore, meaning inventory was equivalent to around 96% of six-month sales. In the previous fiscal year, inventory stood at Tk 61.55 crore against sales of Tk 92.24 crore, or around 67% of sales.

Company Secretary Md Anwar Hossain said the company maintains foreign currency funds because its EDF loan has a 90-day maturity and raw materials need to be stocked according to buyers’ requirements.

However, a DSE director questioned the explanation, saying such a high level of inventory was unusual for a fully export-oriented company. He also questioned the need to raise funds to repay loans when the company already held more than Tk 20 crore in cash.

Royal Footwear had paid-up capital of Tk 33 crore against bank loans of Tk 55.74 crore as of December 31, making its bank debt nearly twice its paid-up capital.

The company’s profitability also remains below the industry average. In fiscal 2024-25, the average return on equity (ROE) for the footwear industry was 11.21%, while Royal Footwear’s ROE was 5.96%.

Discrepancies have also been identified in the company’s reporting of loans. According to the balance sheet, short-term loans increased by Tk 20.87 crore during fiscal 2024-25 and declined by Tk 13.15 crore during the following six months.

However, the cash-flow statement showed only Tk 94 lakh in new borrowing and Tk 1.53 crore in loan repayments during the corresponding periods.

The company secretary attributed the differences to the classification of loans between operating and financing activities but could not provide a detailed explanation for the accounting treatment.

Questions have also been raised over the accounting of buildings, depreciation, land development and the workers’ welfare fund.

According to the draft prospectus, Royal Footwear had building assets worth Tk 19.54 crore as of December 31, 2025, against cumulative depreciation of only Tk 3.66 crore.

Based on the company’s stated 5% reducing-balance depreciation method, the total depreciation on three buildings should reportedly have been around Tk 10.76 crore, raising allegations that depreciation may have been understated by approximately Tk 7.10 crore.

Questions have also been raised over Tk 54.31 lakh spent on developing land purchased for Tk 1.50 crore.

In addition, the company reportedly formed a workers’ welfare fund in fiscal 2023-24 but did not distribute the funds as required. An analysis suggested this may have resulted in around Tk 32 lakh in additional profit being reported over several years.

Company Secretary Md Anwar Hossain, however, said depreciation had been calculated in accordance with applicable rules and that building construction costs had been properly recorded.

Despite the concerns, Royal Footwear has recorded growth in sales and net profit in recent years. Sales increased from Tk 54.97 crore in fiscal 2020-21 to Tk 92.24 crore in fiscal 2024-25, an increase of around 68%.

Net profit rose from Tk 1.87 crore to Tk 5.39 crore over the same period, representing an increase of around 188%.

The proposed QIO, however, would reduce the company’s net asset value per share from Tk 27.54 to Tk 22.59 if new shares are issued at face value. This would reduce the per-share value of existing sponsors and directors by Tk 4.95, with an estimated total reduction of around Tk 15.54 crore in their asset value.

BSEC Executive Director and spokesperson Md Abul Kalam said the commission would examine the issues and take necessary action.