Of over 1,00,000 private and public limited companies, only 300 have gone public and got listed with the bourses of the country. The number of listed companies will slightly go up if those, which were sent to the OTC market over the years, are included. By any standard whether in terms of raised capital or in terms of the present value of the total outstanding stocks or in terms of market capitalisation as the percentage of the GDP, Bangladesh's stock market is still small. Most of the investors in the market are retail investors and the few institutional investors that are in the market also behave like the former.
Professional management of portfolios with stocks is also at a low level and fails to draw the attention of the potential public who would otherwise be willing to part with their funds in favour of the portfolio managers. The financial reports that are presented by the management of the companies with a certification from an auditor before the investing public only lose trust overtime. Now investors neither trust listed companies' management nor believe in the financial reports signed and presented before them by the auditors. The stock market in Bangladesh is passing through a dull period.
Both daily turnover and price index are on the wane since the last few years and investors wonder when both will see a rising trend again. The market did not show any sign of turnaround though the government provided expected incentives in the national budget of FY 2015-2016 and also the market interest rates, which compete with the stocks' yield rates, were seen to be declining in the recent past. The question is whether the market is under-priced or correctly priced. Investors very often value a market by using p/e ratio but it is always a controversy as to which p/e should be taken as a right measure. In a buoyant economy, in all likelihood, the so-called right p/e will rise and the same will fall if the economy goes the other way. The so-called average p/e ratio cannot and should not be a good measure of the market's lows or highs.
Many experts want to say the present level of the market with p/e (x) of seventeen [p/e (x) = 17] should be the buyers' market though this writer wants to differ with them. The ultimate return from the stock market investment is yield rate which is still much low when compared with the other competing rates including the long-term interest rates. Some stocks are being transacted at the sky-high p/e (X), such as those of the multinationals. Investors who are being cheated by the local companies time and again turn to the stocks of the multinationals. Most of the local companies' stocks are used as gambling instruments by a class of investors. Gamblers try to deceive the ordinary investors by creating an artificial demand for their selected stocks.
The only way of keeping the genuine investors engaged with long-term investment in the stock market is to supply the market with quality stocks from good local companies and also from the multinational companies. Only 8 multinational companies, out of 238, have listed themselves with the bourses till now, GrameenPhone being the last one. Now what has held them back from going public by selling a small percentage of their equities when capital in Bangladesh's capital market is cheaper than many other competing sources?
The main reason for not going public by the multinationals was that they did not want to cede any portion of their ownership to the local public as the rate of return from the equities they hold is much higher than they expect. In some other countries, the same multinationals went public not because capital was cheaper in those markets but because there were licensing conditions for going public.
Also the government's shifting policies with regard to incentives held them back from going public. For example, when the GP went public, the corporate tax rate for listed mobile phone companies was 35 per cent and that for the non-listed companies was 45 per cent. The GP went public and got listed with the DSE mainly for availing this lower tax benefit. But to the discontent of the investing public, the government two years back hiked the corporate income tax by 5.0 per cent fixing the Grameen's tax rate at 40 per cent. That definitely gave a wrong signal to the other intending mobile phone companies which were taking preparation for going public and none of the other companies has gone public till now. These companies are doing very good business in Bangladesh but they did not sell any equity to the local investors. In other words, either they remained as branch companies or local subsidiaries without local shareholdings.
Why did so many other local companies also choose the same path of not going public when they could have raised almost any amount of money they wanted at a much lower cost? The reason here was: they wanted to remain family-owned private companies or as secretive enterprises beyond the watchful eyes of the regulator. That gave them the opportunity of hiding tax burden, gave absolute control over businesses and freedom to prepare financial reports the way they wanted. Calling AGMs and filing quarterly and six-monthly financial reports to the public shareholders are thought to be hazardous by the sponsors of the companies. Shareholders, being themselves directors in a private limited company, can draw handsome amount of salaries and other benefits which they will not be able to enjoy if the companies go public.
Then the question can be asked how 300 companies did go public and got listed with the bourses. For some, going public was a licensing condition. But for others, capital from the investing public was very cheap as they could have gone without paying any dividend or profit. Year after year, many of these companies simply did not pay any dividend to the public shareholders. Holding AGMs is also no more hazardous. In some AGMs, the number of directors is more than that of public shareholders remaining present and the meetings are wrapped up within an hour. So going public for a company in Bangladesh is not a big thing. The original sponsors continue to manage the companies though they hold much less than 51 per cent of the shares, as the scattered shareholders do not challenge or exercise their right to manage the companies.
Shareholders' democracy is absent in Bangladesh's share market and the shareholders who in effect are a majority do not enjoy any rights and privileges mentioned in the Company Act or in any other regulation. Filing of financial reports by the listed companies has turned to be a routine work. Nobody bothers about what those reports contain. A company that goes public and another which does not makes little difference in substance. In both the cases, the sponsors win. The government loses as it does not get the tax. Public shareholders lose as they do not get any dividend. Directors of the publicly traded companies get unimaginably rich by selling their shares to the public at the sky-high prices. Ordinary investors purchase those shares and lose money with the plummeting of stock prices.
The writer is Professor of Economics, University of Dhaka,
abuahmedecon@yahoo.com
Why MNCs are reluctant to go public
Abu Ahmed | Published: July 04, 2015 00:00:00 | Updated: November 30, 2026 06:01:00
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