Shyampur Sugar Mills recently announced that it would stop sugarcane processing for the rest of the current fiscal year, a development that has left its stock investors in a state of uncertainty.

The company's decision to stop processing sugarcane for a year will only enhance its loss burden and lead to further woes for investors, said stock investor Abdullah Hujaifah.

Shyampur Sugar took the decision to shut down the mill on December 2 as per instructions from the Ministry of Industries.

As part of the government notice, local sugarcane farmers who traditionally supplied Shyampur sugar would now instead divert their supplies to other nearby mills.

"But what lies in wait next for us is the question," Hujaifah added.

The company auditor said in its report for the year that ended on June 20, 2020 that considering the recurring losses, high production cost, net capital deficiency and classified loans, there was significant doubt over its sustainability without government support.

Since the company continues to suffer losses, its net capital deficiency had reached Tk 494.68 crore in total and Tk 989 per share at the end of the year, the auditor said.

Reading the audit report published recently on the Dhaka Stock Exchangewebsite, many investors now fear that the mill will be shut down permanently, Hujaifah said, adding that the mill's workers were already protesting the decision.

Meanwhile, stocks of Shyampur Sugar suddenly dropped following the announcement, which had investors feeling "pour not water on a drowned mouse", he added.

The company's share price fell 23 per cent to Tk 52 after the announcement although it had since increased 3.69 per cent to Tk 59 as of yesterday.

Shyampur Sugar should be considered different from the rest of the state-run mills since it is listed with the country's bourses and has many investors, said a top official of an asset management company.

"If there is any possibility to diversify the company's products or rebound profits, the effort should be made," he said.

Since the company has been incurring losses for many years now, it is necessary to take drastic steps to change the situation.

"So, I welcome the decision of modernisation," he added.

However, the official went on to say that the company should inform investors on how the mill would be modernised.

A top official of Shaympur Sugar, preferring anonymity, said the Bangladesh Sugar and Food Industries Corporation (BSFIC) informed them through a letter that state-run sugar mills have been incurring losses for a long time for several reasons, including declining production capacities and higher production costs.

In its letter, the BSFIC announced that in a bid to curb losses and modernise the present facilities, six mills would be shuttered until further notice.

"Therefore, the factories are being shut as part of a push to reform and modernise the industry but there was no specific plan included," the BSFIC official said.

The six sugar mills are of Pabna, Shyampur, Panchagarh, Setabganj, Rangpur and Kushtia.

The government holds a 51 per cent stake in Shyampur Sugar while institutional investors 1.69 per cent and general investors the remaining 47.31 per cent.

The company auditor provided a qualified opinion in its audit report based on some of their findings.

The auditor said the company was only able to earn Tk 60,000 on an average per tonne of sugar while the corresponding cost of production was Tk 2.75 lakh, which effectively creates a net loss of Tk 2.15 lakh from every tonne.

It also found that the company's loan balance stood at Tk 25.60 crore and Tk 164.49 crore as long term and short term debt respectively.

"Both loans were classified by the lending bank due to non-payment," the auditor said.

"We have not decided to shut down the factory permanently but instead halt production for one year," said BSFIC Chairman Sanat Kumar Saha.

The government took this decision in order to modernise the facility, he said.

"The company informed us that its sugarcane processing is being stopped for one year so we are keeping the company's activities on our watch list," said Mohammad Rezaul Karim, spokesperson of the Bangladesh Securities and Exchange Commission.

"We have already sat with the company and told them to ensure that investors are not hurt by any of their decisions," Karim said.