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Strategic partner

BSEC forms appraisal body as DSE submits proposal

FE Report | February 23, 2018 12:00:00

The securities regulator BSEC formed a four-member committee on Thursday to look into the proposal from the Dhaka Stock Exchange to pick a Chinese consortium as a strategic partner of Bangladesh's premier bourse.

The Bangladesh Securities and Exchange Commission (BSEC) formed the body on receipt of the proposal on strategic partner from the premier bourse DSE.

Mohammad Saifur Rahman, BSEC executive director, said the committee would submit its report within 10 working days.

"After getting the report from the committee, the securities regulator will give its decision on selection of the strategic partner of the DSE," said Mr Rahman, also a BSEC spokesperson.

BSEC executive director Farhad Ahmed is the convener of the committee, while executive director Mahbubul Alam is the member secretary.

The two other members of the BSEC committee are executive directors Dr. ATM Tariquzzaman and Anwarul Islam.

The DSE's company secretary submitted the proposal earlier on the day to the securities regulator seeking its approval to make the Chinese consortium the bourse's strategic partner.

The bourse on the day sought the schedule of a meeting with the securities regulator. In reply, the BSEC fixed Monday next for discussion on the proposal.

On February 10 the DSE's board of directors approved the Chinese consortium's proposal. The Chinese consortium comprises Shenzhen Stock Exchange and Shanghai Stock Exchange.

Later, the DSE allegedly came under pressure to consider the proposal submitted by the consortium led by National Stock Exchange (NSE) of India. The other members of this consortium are Nasdaq, an American stock exchange, and Frontier Bangladesh.

Later, on February 19 the DSE board 'reconfirmed' its previous decision favouring the proposal of the Chinese consortium.

The Chinese consortium offered Tk 22 per share for the 25 per cent stake of the DSE. The NSE-led consortium offered Tk 15 a share.

Md. Rakibur Rahman, a DSE director, said the bourse's expectation is that the securities regulator would consider the merit of the proposal selected in the interest of the country's capital market and shareholders as well.

"The proposal of Chinese consortium is more attractive than that of other consortium. We hope the regulator will evaluate our approval," Rakibur Rahman said.

The Chinese consortium offered long term investment without imposing any condition. On the other hand, the NSE-led consortium wanted the scope to exit after five years by offloading shares.

The Chinese stock exchanges will purchase DSE's shares through a consortium, while the partners of NSE-led consortium wanted to purchase shares separately. The NSE sought to purchase shares through its subsidiary NSE Strategic Investment Corporation Limited. Besides, the NSE-led consortium's member NASDAQ, an American stock exchange, will not purchase shares. Moreover, the NASDAQ is working as technology partner of the DSE and provided matching engine.

The members of the Chinese consortium submitted the proposal for becoming DSE's strategic partner after taking relevant regulatory approvals. On the other hand, the NSE is yet to take approval from the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India.

The Chinese consortium wanted one position in the board as per the demutualisation scheme, while the NSE-led consortium wanted two posts.

In its proposal the Chinese consortium offered technical support worth nearly $37 million for free. Their technical offer included the exchange's trading and surveillance system upgradation plan, business process management system consulting plan, consulting service plan for bonds tender system, information disclosure and investor relation service automation network, consulting service plan for data centre and co-location, and financial cloud technology transfer plan.

On the other hand, the technical offer of NSE-led consortium is limited within only consultancy and experience sharing. Their technology offer includes NEAT on Web (NOW), clearing and settlement system, co-location, surveillance and risk management and ERP System. To avail such a technical offer, the DSE will have to sign a deal with NSE subject to specific condition.

The DSE official said they already implemented some features which are mentioned in the proposal of the NSE-led consortium.

Two members of Chinese consortium made a same proposal on introduction of new products and market development. In this regard, they imposed no condition.

On the other hand, the NSE-led consortium also made a similar proposal regarding introducing new product and market development. But a business deal will be required here subject to specific condition.

According to the demutualisation scheme of the stock exchange, DSE has more than 1.80 billion shares with a paid-up capital of Tk 18.03 billion.

Out of the total shares, 25 per cent or more than 450 million will be sold to a strategic partner. So, the premier bourse is set to receive Tk 9.92 billion by selling these shares if Chinese consortium's offer is approved by the BSEC.

After becoming the strategic partner of DSE by holding 25 per cent shares, the Chinese consortium will also hold a position in the 13-member board of the exchange in line with the demutualisation process.

As per the demutualisation scheme, in the 13-member board of the bourse, seven are independent directors, four shareholder directors, one from strategic investors' category, and the bourse's managing director.

The demutualisation scheme was approved by BSEC on September 26, 2013, in which the DSE shareholders primarily got 40 per cent of the stakes along with receiving TREC (trading rights entitlement certificate).

Of the rest 60 per cent shares of the bourse, 25 per cent shares have been kept in block account for strategic investors. Besides, 35 per cent shares have been set aside for institutional and individual investors, which will be offloaded through initial public offering (IPO).

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