Defunct on ground, alive on bourses: Why delisting is urgent

Meghna Pet Industries' existence has long been reduced to a name on paper. It has been out of business for more than 23 years, has failed to declare dividends for years, and has not held annual general meetings for more than a decade.
The company meets all the conditions for delisting. Still, its stock continues to be traded on the main boards of the stock exchanges.
There are at least 31 more non-operational companies whose stocks continue to distort the market, as they are easy targets for artificial rallies. The management of many of these firms is virtually non-existent, and they lack any tangible assets.
The regulatory bodies blame each other for failing to take action to delist these companies. Meanwhile, general investors fall victim to deception when they participate in artificial rallies in such stocks and end up losing their investments.
Abul Kalam, spokesperson of the Bangladesh Securities and Exchange Commission (BSEC), said the prime bourse was empowered to delist any company under the DSE Listing Regulations 2015.
"But before delisting any company, the stock exchange should ensure that the interests of general shareholders are protected," he said while talking to The Financial Express over the phone.
As per the listing regulations, any listed company may be delisted if the issuer has failed to declare dividends (cash or stock) for five years from the date of the last dividend declaration or from the date of listing in the equity market.
A company may also be delisted if the issuer has gone into liquidation, either voluntarily or under a court order, or has kept its commercial operations, production, or exploration suspended for three consecutive years.
The problem is that the exchanges are unable to enforce the regulations without the consent of the securities regulator.
In 2019, following a review of the performance of 14 companies, the prime bourse sought instructions from the then securities commission regarding their delisting but received no response.
As a result, the plan to remove the companies from the secondary market could not be executed.
Meanwhile, sponsor-directors of many non-functional firms sold off their stakes in the secondary market, passing on the losses to retail investors.
"The prime bourse has taken a cautionary stance in delisting such companies in the interest of general shareholders," said Md Sajedul Islam, a director of the Dhaka Stock Exchange (DSE).
For example, sponsor-directors of Familytex (BD) now own only 4.02 per cent of the free float. "If the company is delisted, general shareholders will be the losers," Mr Islam said.
Moreover, delisting of non-performing companies has previously faced hindrance from the BSEC. There have been instances where companies were relisted after being removed from the main board following interventions by the market watchdog.
Rahima Food Corporation, for instance, was delisted in July 2018 and relisted two years later by the Dhaka exchange under pressure from the securities regulator.
Mr Islam, however, spoke in favour of delisting non-functional companies in phases.
Market analysts said proper enforcement of delisting regulations should be one of the priorities of the newly elected government to restore market discipline and investor confidence.
While the listing of well-performing companies would expand the market, there must also be an implementable legal framework to remove non-performers from the trading floor.
"The existing provisions should be streamlined to ensure their enforcement," said Saiful Islam, president of the DSE Brokers Association (DBA).
Globally, delisting is a common practice. "Our country also has laws for delisting, but they are not effectively implemented," the DBA chief said.
Meanwhile, a high-powered committee formed by the Ministry of Finance advised the relevant agencies, including the capital market regulator and stock exchanges, to prepare exit plans for listed firms unable to continue operations.
The four-member committee, led by Anisuzzaman Chowdhury, special assistant to the outgoing chief adviser, also recommended in November last year the creation of a separate 'R' category for long-closed, loss-making, and non-dividend-paying companies, where their stocks would be traded on a separate platform.
The move aims to curb abnormal price hikes and market manipulation involving fundamentally weak stocks.
As many as 111 out of 359 listed firms have been shifted to the 'Z' category due to factory closures, accumulated losses exceeding paid-up capital, failure to hold annual general meetings on time, failure to disburse declared dividends, and other compliance issues.
The growing number of junk stocks is worrying for the market's development. As such companies increase rapidly, they send a negative signal to both domestic and foreign investors.
Many junk stocks frequently show abnormal price jumps. For example, state-run Shyampur Sugar Mills has incurred huge operational losses for a long period and failed to declare dividends for decades, yet its stock surged 27 per cent to Tk 172 per share in the month through Sunday.

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