The controller of Bangladesh Securities and Exchange Commission (BSEC) will review the financial statements of Keya Cosmetics for the last five years, as the stock market regulator suspects mismatches in the accounts that misled investors.

In this regard, the commission on Sunday set up a four-member inquiry panel with BSEC's Additional Director Md Kawsar Ali as the convener, and deputy directors Mawdud Momen, Md Rafiqunnabi, and Assistant Director Md Sakil Ahmed as members.

According to BSEC officials, the firm listed on the capital market has failed to comply with regulatory requirements and even did not respond to queries from the commission for a few years.

Now, the commission is concerned about the business of the company and suspects that it might not have maintained its financials properly, added the officials.

The inquiry team will also examine the amalgamation scheme through which Keya Cosmetics Limited acquired the assets, liabilities, and equities of Keya Spinning Mills, Keya Cotton, and Keya Knit Composite Limited.

It will scrutinise the audited financial statements of these entities prepared prior to their amalgamation. In 2015, the regulator approved Keya Cosmetics to proceed with the amalgamation scheme.

The commission had initially made the decision to appoint a special auditor for the company, but later it changed its decision.

Company Secretary Md Noor Hossain declined to comment on this matter, stating that they are not aware of the development.

According to the Dhaka Stock Exchange (DSE), the company has loans of Tk1,873 crore till 30 June 2020.

The team will also go through segment-wise financial disclosures of cosmetics, cotton, spinning, and knit composite units of the company over the last five years.

The rise of Keya

Keya Group is an example of how a business can grow fast in Bangladesh and fall at an even faster pace.

Keya Group – established by a hardworking entrepreneur, Adbul Khalek Pathan – was doing well in its detergent and soap business until it went too aggressive in the textile business in the 2000s, and also as a stock market issuer.

Adbul Khalek Pathan significantly popularised Keya soaps across rural Bangladesh mainly through sponsoring Ityadi, the most popular TV magazine program in the country.

Keya Group also received export trophies in its golden days of rise during the 2001-2005 period.

Over that period, the group got two of its flagship businesses – Keya Cosmetics and Keya Detergent Ltd – listed on the bourses. Alongside garments, the group also used to export some soap and detergent.

Keya Cosmetics, by making annual profits of more than half of its paid-up capital, amalgamated Keya Detergent and its backward linkage with Keya Soap Chemicals Ltd in 2010.

The beginning of fall

The amalgamation appeared to be a synergy killer in contrast to the common expectation for synergy boosts as the post-amalgamation listed company's profit dropped by two-thirds within three years.

The same story of unwelcomed amalgamation was repeated in the mid-2010s when the group attempted merging three of its textile companies – Keya Spinning Mills, Keya Cotton Mills, and Keya Knit Composite – which had already failed to get listed on the bourses.

Investigative media reports that unveiled the proposed amalgamation scheme's fraudulent nature were challenged by the company in the court. And in 2015, the securities regulator approved the amalgamation widely believed to have merged nearly Tk1,000 crore of fake assets.

In February 2020, the FRC launched its investigation into Keya Cosmetics' financial statements and found that the company had been overstating assets worth more than Tk1,000 crore along with showing fake profits.

As of 30 April 2023, sponsors and directors held 46.27%, institutions 8.25%, and general investors 45.48% shares of the company.

Its share price was stuck on the floor of Tk6.40 till Monday.