FE Today Logo

29 OTC cos: Market exit delay forces investors to suffer

Regulator issued exit guidelines without any deadline

Mohammad Mufazzal | March 05, 2023 00:00:00

As many as 29 companies, which have remained non-operational for at least a decade, are yet to exit the stock market to the agony of individual and institutional investors having no means to offload their holdings.

The securities regulator did not set any deadline when it asked the stock exchanges in September 2021 to pave the way for exit of the companies. That explains why there is little progress in complying with the order.

The companies are among the lot that had been delisted and shifted to the OTC (over-the-counter) market in 2009 because of their non-functional status.

After so long, the Dhaka Stock Exchange (DSE) says it is unable to track down six of the companies. The Financial Express, however, could not find profiles of 10 companies on the exchange's website.

Ten other companies are listed in the OTC market of the Chittagong Stock Exchange (CSE).

Most of OTC companies had become public during the heyday of the market ahead of the 1996 crash, when it was buoyant for abnormal price appreciations of stocks.

Looking back, Md Shakil Rizvi, a former DSE president, said most of these companies had ill intention and that investors had been deceived into purchasing their shares.

"The then commission transferred those non-performing companies to the OTC market to keep those out of public eye," said Mr Rizvi.

Of the 29 companies, only Jessore Cement has undertaken an exit plan and deposited Tk 75 million into the DSE account to buy back shares from general investors.

Individual investors held 39.77 per cent shares in the once cement manufacturing business.

DSE officials said the company had repurchased more than 70 per cent of the public holdings.

Another company Arbee Textiles has also come up with a share buyback plan.

According to a DSE official, who spoke on condition of anonymity, sponsor-directors hold majority of the shares in Arbee Textiles and that it will start the buyback process soon.

M. Shaifur Rahman Mazumdar, managing director of the premier bourse, said a DSE team had been working to facilitate the companies' exit. "The execution of exit plans of three companies is at advanced stage."

A senior official of the CSE said the authorities were trying to trace companies that had been instructed to exit the market by paying back investors' dues.

How to exit the market

Before asking the OTC listed companies to exit, the Bangladesh Securities and Exchange Commission (BSEC) issued guidelines in December 2020 on the process to be followed to exit the market.

As per the directive, the offer price for share buyback should be same as the face value of each share, or issue price at the time of the initial public offering, or the closing price on the day of delisting or the net asset value (NAV) per share as per the last audited financial statement, or the volume weighted average price for one year to the day of trade suspension, or the date of delisting, whichever is higher.

The offer price for buying back securities under an exit plan shall be at least equivalent to the face value in case the securities traded below the par or face value, subject to the approval of the commission.

Companies delisted from the main board, or delisted securities trading at the OTC market, or delisted securities trading at ATB (alternative trading board), will be allowed to leave the market.

They can apply for exit on the ground that they have not been in operation for more than two years, or have incurred loss for three consecutive years, or their accumulated loss or debit balance of retained earnings exceeded paid-up capital or they have failed to declare any cash dividend for three years in a row.

How to ensure investors get their money back

Shareholding positions and latest trade prices of 19 companies are available on the DSE website. How much the companies owe to general investors can be assessed, given the regulatory directive on the offer price for share buyback.

According to the prime bourse, individual investors hold shares amounting to 5.42 per cent-66.67 per cent in 19 companies.

As per the BSEC directive, the companies will require around Tk 2.28 million to Tk 95.45 million to pay off dues to the investors. So, the aggregate amount required to repurchase stakes of public investors in the companies comes around Tk 345.37 million.

Dr. Ahsan H. Mansur, executive director of the Policy Research Institute (PRI), said the securities regulator should accelerate the liquidation process of the companies to pay back investors' money.

"To ensure that investors get minimum benefits, the securities regulator should form a standing committee on an urgent basis. Otherwise, the remaining assets of the companies will be squeezed out by the sponsors," he added.

Former DSE president Shakil Rizvi said some of the companies had lands in prime locations, which became pricier with time.

"As part of the liquidation process, the companies, which are at stake, should be categorized in an effort to pay back investors' money, selling out the lands."

On the deadline for exit, BSEC executive director Mohammad Rezaul Karim said sometimes issuers seek extension of the deadline set, which is why "we did not give any deadline". The BSEC will intensify monitoring to make sure that the companies make an exit quickly, he said.

[email protected]

Share if you like