Hold AGMs, pay dividends or face the music

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M Azizur Rahman
The government has planned to bar directors of the companies, which do not hold annual general meetings (AGMs) or pay dividends regularly, from taking loans from any of the country's banks or financial institutions, officials said Friday.
The finance ministry has already asked the Bangladesh Bank (BB) to take necessary action to this effect immediately to put pressure on the directors with a view to maintaining transparency and accountability in the operations of the default-listed companies, a senior finance ministry official told the FE.
It would also help stop the long-practised culture of fund diversion by unscrupulous directors from listed companies, which is one of the main reasons of weak fundamentals of many defaulting companies, he said.
Currently only the loan defaulters are barred from taking fresh loans from any of the country's commercial banks or financial institutions.
The banks or the financial institutions provide loans only after getting clearance over the loan default positions of the firms concerned, if any, through the credit information bureau (CIB) of the central bank.
A total of 246 companies are listed with the country's bourses. Thirty-two of them are categorised in Z category, the worst among the listed companies, due to their weak performances.
In line with the directives from the country's capital market regulator, Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) recently transferred 51 listed companies to the newly created over-the-counter trade (OTC), where the shareholders face complexities in trading shares.
The Securities and Exchange Commission (SEC) has also urged the investors to be cautious while investing with the non-performing companies.
The commission also decided to withdraw margin rule facilities for trading of the 'junk' shares to ensure that the investors remain safe from massive losses.
"It had been the demand of the market players for long," SEC member Mansur Alam told the FE.
Barring the 'performance defaulters' from taking fresh loans would bring about transparency and accountability in the listed companies, he said.
"This is a very good decision to protect the interests of shareholders," former adviser to the caretaker government Dr AB Mirza Azizul Islam said.
"During my tenure, I wrote several times to BB to implement this," said Mr Islam, who was also a former chairman of SEC.
Mr Islam, however, said the cases of those companies who do businesses but incur losses due to unavoidable circumstances should also be taken into account.
This decision was among the few good decisions the finance ministry has recently taken over the country's capital market, DSE president Rakibur Rahman told the FE.
It would bring transparency and accountability to the country's nascent stock markets, he said.
He alleged that the unscrupulous businessmen have long been depriving the shareholders of due dividends without holding AGMs intentionally.
Market experts said as per previous practices, the bourses and the market regulator would issue show cause notices to the directors of the listed companies to explain reasons for their failure to hold AGMs.
Nominal fiscal penalties were all the bourses or the regulator would charge in such default cases.