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Chinese consortium agrees to go by binding BD rules

Resolving DSE strategic partnership dispute

Mohammad Mufazzal | March 05, 2018 00:00:00

The bid-winning Chinese consortium agreed to exclude and relax their conditions set to be strategic partner of Dhaka Stock Exchange (DSE), trying to address a few issues.

Having received consent from the Chinese consortium, comprising Shenzhen Stock Exchange and Shanghai Stock Exchange, the premier bourse of Bangladesh sent Sunday the clarification of the sticking points to the securities regulator.

On February 27 last, the Bangladesh Securities and Exchange Commission (BSEC) sought clarification from the DSE management on some conditions for a foreign firm to become strategic partner of DSE through the purchase of its 25 per cent stakes as part of demutualisation process.

DSE sources said the Chinese consortium has agreed to sign share-purchase agreement as per the law of Bangladesh. The consortium earlier had proposed to conclude the agreement as per the UK law.

But the arbitration of any dispute, if arises, will be conducted as per international arbitration rules of the UK.

In this regard, the DSE officials said The Bangladesh Arbitration Act permits arbitration in the international court.

"Any foreign investor prefers arbitration in international court for the sake of their investment," a DSE director said, preferring anonymity.

He said the Chinese consortium preferred the scope of arbitration in Hong Kong court.

"But we preferred arbitration in the international court of London as Hong Kong exits in Chinese territory," the DSE said in clarification, adding that they would not sign any agreement bypassing the interests of the country and shareholders.

The Chinese consortium had also set a condition of taking their approval for decisions of issuing new shares, changing the number of directors and achieving any intellectual property such as software, patent and other technologies.

The consortium has excluded these conditions from its proposal, according to the DSE reply sent to the BSEC.

Also, it has dropped the condition of taking its approval for valuation of the exchange's shares, approving prospectus and determining the issue price.

The Chinese proposal said it could appoint anyone to the DSE board notwithstanding whatever the articles of association state.

In its reply to the BSEC query, the DSE said the Chinese consortium has omitted the clause on taking its approval for appointing anyone to the bourse board.

Moreover, the consortium also excluded the condition of abolishing or suspending the settlement-guarantee fund contribution.

The highest bidder had set a condition of taking its approval regarding decision on more than 15 per cent of any current asset and inclusion of any strategic partner.

The DSE said the condition regarding 15 per cent shares will be included just as general condition. "The DSE need not bring any change in the articles of association to abide by such condition," the DSE source said.

They maintained that the spirit of demutualization supports the necessity of including at least one strategic partner with a buy of 25 per cent shares.

The shareholders hold 40 per cent shares while the remaining 35 per cent will be offloaded through IPO.

"The scope of including another strategic partner is very limited. So, the Chinese consortium's condition regarding taking its approval for another strategic partner will have no implication," a DSE official said.

The Chinese bidder had also included the condition of taking its approval for any single and joint investment worth above Tk 100 million. In this case, it has increased the investment limit up to Tk 1.0 billion.

It has also increased the limit of taking loans worth above Tk 1.0 billion from Tk 100 million to be taken as per the approval of Chinese consortium.

The BSEC also sought neutral assessment of $37 million worth of technical support for free.

In this regard, the DSE said the assessment will be defined on avail of the facility based on quality.

On February 10, the DSE board approved the proposal of the consortium of Shenzhen Stock Exchange and Shanghai Stock Exchange, which turned out to be highest bidder for becoming DSE's strategic partner.

The consortium offered Tk 22 per share for 25 per cent of DSE's total shares. It also offered technical support worth nearly $37 million for free.

The other consortium, led by NSE, stood a distant second in the bidding, offering Tk 15 per share for 25.01 per cent of DSE's total shares.

Later, the DSE submitted the proposal of Chinese consortium to the BSEC on February 22, and the same day the regulator formed an appraisal body to look into the proposal.

Later on February 27, the BSEC committee sought clarification from the DSE on the proposal.

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