The Bangladesh Securities and Exchange Commission (BSEC) has halted the subscription for a qualified investors offer (QIO) by homegrown software firm Doer Services Ltd to raise Tk 5 crore, following several media reports about the company's problematic client agreements and profitability.

Besides, the regulator decided to form a committee comprising officials from the BSEC and the Dhaka Stock Exchange (DSE) to look into the issues.

The decision was made during a commission meeting yesterday.

The DSE Brokers Association of Bangladesh (DBA) welcomed the move and thanked the stock regulator.

The share subscription for the company was scheduled to begin on January 19 and run until January 23.

However, market analysts questioned Doer Services Ltd's fundraising plan, as the company's revenue mainly comes from just two clients.

They said this heavy reliance risks the firm's survival if either client withdraws its business.

Market analysts questioned Doer Services' fundraising plan, as the company's revenue mainly comes from just two clients

In the 2022-23 financial year, 81 percent of Doer's total revenue, which is Tk 58 crore, was generated from providing services to Agrani Bank, while 17 percent, or Tk 12 crore, came from the Insurance Development and Regulatory Authority (Idra), according to the company's prospectus.

Doer's services to insurance regulator Idra have already faced questions, as insurance companies are reluctant to share client data with a third-party firm.

Besides, market insiders are also critical of the bidding process, the award of the project to Doer and the high price of its services.

Moreover, Doer services to Agrani Bank also came into the spotlight.  

Previously, the Bangladesh Bank flagged the issue of Agrani Bank outsourcing its project to a third party, citing the risks associated with sharing sensitive data with an external entity.

Doer got both the projects of Idra and Agrani Bank under the previous government. If the contracts are not renewed by the current government, the company could land in hot water.

"Such a company is risky for the stock market," said a director of the DSE, who requested anonymity.

In the 2022-23 financial year, Doer reported retained earnings of Tk 36 crore and profits of Tk 22 crore.

It said the fundraising was meant for business expansion and related to strategic governance issues.

It received regulatory approval on 9 June last year to issue 50 lakh shares at Tk10 each, although the DSE recommended against allowing the company to raise funds.

On 8 August 2023, the DSE submitted its observations opposing the QIO. The DSE cited two key observations for its decision.

Firstly, the company increased its share capital to Tk 44.50 crore by declaring a 44,400 percent bonus dividend from Tk 10 lakh just before proceeding with the QIO.

Secondly, the company engaged in related-party transactions by providing an interest-free loan of Tk 8.68 crore to one of its sister concerns Celloscope Limited, which violates the regulatory rules.

By the end of the 2022-23 financial year, the loan increased to Tk 10.64 crore.

Moreover, Doer Services failed to maintain proper documentation for the loan.

The DSE said the company did not consider factors such as financial interest, rate of return, payment period and method of repayment when providing the loan to its sister concern.

"It appears that these transactions were not conducted on an arm's length basis, as required by international accounting standards for related-party transactions," said the DSE.

The DSE also said that Celloscope Ltd, based on its latest audited financial statements from 2019, was a loss-making entity with negative retained earnings.

The fact that the company has not audited its financial statements since the 2018-19 financial year raises questions about its viability, according to the DSE.

The DSE said Doer Services transferred a substantial amount of funds to its sister concerns, which could not be verified due to the absence of audited financial statements for these entities.

Bony Tasnim Ibna Razzak, head of Operations at Doer Services Ltd, admitted their reliance on two major clients and said that they began diversifying the client base in 2023.

The company, which holds an SMS aggregation licence, also plans to increase earnings from this business segment.

"If we maintain our commitment and ensure quality, Agrani Bank will continue working with us," he said, adding that around 10 lakh accounts have been added to agent banking, where Doer Services has made huge contributions.

Regarding the advance to its sister concern, he said that the amount is recorded as an advance payment for software, artificial intelligence, machine learning and related technologies. According to the agreement with Celloscope Limited, these will be considered company assets upon delivery.

Despite its significant profits, the company intends to raise funds from the stock market to expand its client base at the enterprise level and establish strong governance as a service provider, according to Razzak. 

"Being a listed company will enhance our credibility and help us secure more projects," he added.