Luring MNCs to capital market

The issue that most foreign companies operating in Bangladesh are not listed on the stock market has been bothering both policymakers and investors for long. Yet there has not been any notable progress in luring them to the market in the absence of any meaningful move.
More than 350 foreign companies, registered with the Registrar of Joint Stock Companies and Firms (RJSC&F), are in operation in Bangladesh. Only a dozen of them are listed on the Dhaka Stock Exchange.
The foreign companies operating in various sectors of the Bangladesh economy, in most cases, have been earning hefty profits.  There is no way of knowing the situation with the companies that are not listed. But the annual financials of the listed ones do tell about their high profit earning. These companies usually declare dividends ranging between 100 and 500 per cent, or even at higher rates.
While most local listed companies distribute a part of their annual dividends among shareholders in the form of stocks, multinationals avoid that practice. The foreign companies are least interested to expand their capital base. They are naturally interested to repatriate profits back home and that is why they always declare cash dividends. The money sent home by the multinationals through transfer-pricing, however, remains beyond the profit repatriation.
Of all the foreign companies listed on the country's bourses, the size of the local shareholdings is very small. So, a negligible amount of profit earned by the listed foreign companies goes to the local shareholders.     
The policymakers, it seems, do not bother much about the low share-offloading by the foreign companies. They are more interested to see these companies going public. Their entry surely would add to the credibility of the local stock market, giving an impetus to it. The confidence of the investors, which has remained very low since the collapse of the market in December 2010, would also get a boost. The entry might also help lure foreign portfolio investment in greater volumes.
But all these would remain mere wishes unless something concrete is done to facilitate the entry of foreign companies in the domestic stock markets.
Now, the million-dollar question is: What should be done to ensure the listing of foreign companies on the local bourses? Should the government make listing on the bourses mandatory for all the foreign companies or offer incentives to lure them to get them listed, voluntarily?
The Bank and Financial Institution Division of the Ministry of Finance (MoF) was scheduled to organise a meeting Sunday last to discuss the possible ways of ensuring entry of foreign companies in the stock market. The representatives of a number of official agencies attended the meeting.
The government has offered some fiscal incentives to companies listed on the stock market. The listed ones barring the banks, tobacco companies and telecom operators are enjoying corporate tax rebate at a rate of 10 per cent. The listed banks are getting a tax rebate of 2.5 per cent and cell phone companies 5.0 per cent. It is mandatory for any registered company having paid-up capital of more than Tk 500 million to go public. However, the company concerned would have to be in profit for three consecutive years prior to such listing. But the same rule does not apply in the case of foreign companies.
When the mandatory provision of listing was enforced by the securities regulator in 2006, the multinational companies had approached the now defunct Board of Investment (BoI) and secured exemption.
Though around 350 foreign companies are operating in the country, a large number of them do not have a large presence. However, at least 15 to 20 multinationals do have strong presence in various sectors of the economy. They do also earn handsome profit annually.
It is apparent from their attitude that these companies are not willing to go public, for fear of, what they describe as, regulatory interference and other unnecessary botheration. Going public by any entity means greater transparency and accountability on its part in line with the relevant legal requirements. The multinationals are not in need of mobilising funds from the capital market since they have enough of it. Unless compelled why should they enter an arena where lots of questions are asked by shareholders and securities regulator?
There is no denying that despite all the scrutiny, a publicly listed company does enjoy a different image since it has greater exposure to the government and the public. Still many companies are staying away from the capital market after weighing all the pros and cons.
It would not be prudent to force potential foreign companies to go public. Fiscal and other incentives might lure them to do so. So, it would be proper for the relevant government agencies to hold talks with foreign companies they deem have the prospect of going public to know the latter's minds. Only then the government could think of doing whatever necessary to attract more foreign companies to the stock market.
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