Regulator allows cos more time to maintain status quo

The securities regulator has paved the way of avoiding junk status until the companies make their next dividend declarations.
The Bangladesh Securities and Exchange Commission (BSEC) on Thursday issued a directive, saying companies will be transferred to 'Z' category if they fail for two consecutive years, instead of one, to declare any kind of dividends.
The order shall be effective from the day of next announcement of annual/interim dividends.
As a result, the companies, which have escaped from the labeling of junk stock, will have time to regain strength to keep their footing.
As per the 2013 settlements and transactions regulations, a company's status should be changed every year immediately after the annual general meeting (AGM), based on the decision relating to dividends -- cash or stock or both.
A company exists in 'A' category by distributing 10 per cent dividends or above, in 'B' category by paying out dividends less than 10 per cent and is shifted to 'Z' category for not providing any dividend.
The 2013 rules were in place until Thursday, except for a two-year period through November 2023 as the regulator had relaxed the provisions due to Covid outbreak.
In September 2020, the securities commission allowed companies to maintain their status without giving cash dividends for two consecutive years.
"There is no good justification in allowing a company to avoid junk status for two years without distributing any dividends," said Md. Ashequr Rahman, managing director of Midway Securities.
The regulator might have considered a grace period for companies after the restructuring of their boards or a transfer from the OTC (over-the-counter) market to the main market.
"Still, where is the problem if such companies exist in 'Z' category before showing performance," Mr. Rahman said.
Another reason behind attempts to avert the junk status is to avail of margin facility and to reduce trading cycle.
Mr Rahman cautioned that companies might issue stock dividends to keep their position unchanged. "But bonus shares are no dividend in real sense."
Mohammad Rezaul Karim, an executive director of the Securities and Exchange Commission, said many investors took decisions based on the 2020 directive that relaxed rules due to Covid.
Two-year time has been offered for the sake of consistency with the 2020 order, he said.
The market may face a significant impact if many companies are labeled as 'non-marginable' at a time, Mr. Karim added. Now, investors will get time to make investment decisions.
"On the other hand, a company can also improve performance within the given time."
Earlier, many companies remained in 'B' category by distributing nominal dividends.
Zaheen Spinning, Legacy Footwear, and C & A Textile are among those companies that avoided junk status, distributing cash dividends between 0.25 per cent and 0.5 per cent for FY23.
The premier bourse has expressed dissatisfaction with the intention.

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