Regulator seeks to reopen cos at any cost because they can repay if functional

The securities regulator strives to bring non-operational companies back into operation in any way possible so that investors get return from the money they have injected into the organisations, says the regulatory body chief.
In an exclusive interview with The FE, the chairman of the Bangladesh Securities and Exchange Commission (BSEC), Prof Shibli Rubayat Ul Islam says a company shuts down mainly due to financial frauds committed by the board or the management, making employees and workers jobless.
The company's ownership will be transferred, if required, for the sake of continuation of a business, he says.
Buildings and machinery are left to rot, causing huge loss of investments, when a factory remains shut.
The major reason behind the rise in the amount of non-performing loans (NPLs) is the closure of factories. Banks fail to recover loans from such entities.
"The recovery of NPLs is never possible through sales of companies' lands only," says Mr Islam.
A list of loan defaulters was placed in parliament in 2020, which included listed company C & A Textiles and Emerald Oil Industries.
C & A Textiles resumed operation in June six years after its closure, while Emerald Oil Industries returned to production in September 2021, supported by fresh investments from local and foreign investors.
A list of top 20 defaulters, which was placed in parliament in January this year, included listed company Appollo Ispat Complex. Its default loans amount to more than Tk 6.23 billion. The company has been out of operation for more than two years.
The BSEC chief explains as to why the regulatory body took some moves, which drew huge flak later on, in efforts to help companies restart production.
With permission from the regulator, Legacy Footwear issued placement shares to investors save for existing shareholders at a price much lower than the market price.
Mr. Islam says the company had been closed for a while. Banks were unwilling to provide it with loans. The company's financial position was also unfavourable for raising capital from existing shareholders through rights issues. With fresh funds from placement shares, the company got back to operation and settled a bank loan.
Two other non-performing companies had been allowed to merge with non-listed companies.
Insisting that the regulatory measures were taken in the interest of investors, the BSEC chairman says shareholders do get nothing out of a non-functional company.
On completion of the mergers, the companies began production. "Now the entities are in a position to disclose profits and asset values and recommend dividends," Mr Islam adds.
Little progress in listing of state-owned cos
There has been little progress in listing of state-run enterprises in the capital market in more than a decade after Prime Minister Sheikh Hasina issued a directive to different ministries in this regard.
The chairman of the regulatory body says the boards and top officials of the state-run companies are unwilling to come under the strict financial regulations that listed companies have to adhere to.
"The companies will incur losses, but they will run the companies as they wish," Mr Islam says.
Some listed state enterprises have frequently received fund support from the government, causing earnings dilution, as the funds are converted into equity. For example, Bangladesh Submarine Cable Company received equity money from the government thrice but did not consider issuing bonds even though it had sufficient cash flow.
Experts say that had the company issued bonds, it would have been more accountable and the company officials would have felt obligated to complete projects on time. The government could also give the money in low-cost loans or against redeemable preference shares.
Is it all about stocks?
Apart from equity securities, key components of any capital market include derivatives, debt instruments, exchange traded fund (ETF), real estate investment trust (REIT), SME Board, and alternative trading board (ATB).
But for a long time, the market in Bangladesh was limited to stocks.
Referring to the introduction of the secondary bond market and SME board, Mr Islam says, "The missing components of the capital market have begun to appear amid huge roadblocks.
"The outcome of such products will be visible gradually."
Imprudence of chief financial officers (CFOs)
CFOs have to be active in turning the bond market vibrant, Mr Islam says.
Costs of doing business increase with bank loans as the interest rates go up. The CFOs can bring down the cost by issuing bonds.
The companies are taking loans at an interest rate of 12-14 per cent, whereas the coupon rates of bonds range between 8 and 9 per cent, says Mr Islam.
"The CFOs don't even inform company owners of the available cost-effective products. The interest rates of bank loans are cumulative, whereas coupon rates are plain and fixed."
Is floor price rational?
The price controlling mechanism, which is yet to be withdrawn, has been criticised, as it has impeded the process of price discovery of listed securities since June 2021.
The BSEC chairman says the Bangladesh market has experienced less volatility due to floor price, whereas the other markets have seen extreme volatility.
"It saved investors from huge losses. I think the scenario will change after the national election." Investors and businesses remain cautious ahead of national elections. Their anxiety over the market will go away after the election, Mr Islam concludes.

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