The probe report on the stockmarket scam found massive irregularities in the valuation of GMG Airlines shares, majority of which are owned by Salman F Rahman's Beximco Group.
Anomalies in all heads of the accounts -- from sales revenue to operating expenses, gross profit, agency commission and tax -- have been found in GMG Air's share valuation.
Its issue manager Janata Capital and Investment, a subsidiary of state-owned Janata Bank, and the Securities and Exchange Commission (SEC) authorised the manipulated price, revealed the probe report submitted to Finance Minister AMA Muhith Thursday.
Surprisingly, the shares of GMG Airlines were compared to those of Samorita Hospital, Eastern Housing, Summit Alliance Port and Ocean Container, which are completely different type of stocks.
"It was a comparison between a sparrow and an elephant," observed the report.
This comparison has helped the shares to be overpriced, and neither the issue manager nor the SEC raised any question on it. The indicative price of a share of GMG Airlines was set at Tk 150.
According to the balance sheet submitted to the issue manager and the SEC, sales revenue for the first nine months of 2010 grew by 35 percent compared to the entire 2009 (12 months).
On the other hand, travel agency commission and Vat and tax went down by 60 percent to Tk 6 crore only.
"This is unrealistic as a rise in sales will also mean more commission and tax. Otherwise, the company has evaded tax," cited the probe report.
Gross and net profits of the company were shown to have increased by 120 percent and 133 percent respectively during the first nine months of 2010 compared to those of 2009. Nine percent and 92 percent reduction in operating and phone-fax expenses also did not match the booming profit of the company.
Accordingly, earning per share (EPS) was shown at Tk 10.31 for 2010 by inflating the income and reducing the expenses. The company's EPS was at Tk 0.26 and Tk 0.31 in 2006 and 2007 respectively. The probe body found EPS at Tk 7.69 for 2009 was also inaccurate.
The report also revealed that two issue managers had declined to manage the GMG shares due to the serious price manipulation.
These two managers set the indicative price at Tk 70 considering the EPS and book value. As the company had pressed them to set the price at Tk 150 per share, they declined to accept the mandate.
Later, the state-owned Janata Capital and Investment calculated the indicative price of per share at Tk 203.75 and from a conservative viewpoint it recommended the price at Tk 150.
In the calculation, Janata Capital considered 6.30 times of book value, 10 times of EPS and 56.55 times of annualised EPS to set the indicative price. "None of these is realistic and the SEC has approved the valuation and information memorandum," found the probe report.
GMG has also manipulated retained earnings, reserve and surplus and revaluation of assets, according to the probe report.
GMG is one of the case studies the probe committee headed by Khandkar Ibrahim Khaled found.
GMG Airlines commenced operation in 1997 as the country's first private carrier. The economic crisis of 2008-2009 resulted in severe losses for the global airlines industry and Bangladesh was no exception, says the company's website. Beximco Group bought majority stake in the company in June 2009.
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