The Alternative Trading Board (ATB) of the Dhaka Stock Exchange (DSE) has failed to attract the targeted entrepreneurs even in two and a half years since the launch of the platform. The main reasons, as cited by market insiders, are the ceiling of the share price valuation and trading restrictions.
The platform is meant to facilitate trading in shares of non-listed companies, bonds, sukuk, open-ended mutual funds, and alternative investment funds.
It does not allow any company to raise capital by issuing shares to the public. Instead, sponsors or existing shareholders can sell shares to the extent of 49 per cent of the paid-up capital.
Listing criteria for the ATB have been kept loose so that firms having growth potential can avail of the opportunity to collect private equity from keen investors. The listing process is both simple and low-cost.
The major factor that diminishes the potentials of the trading platform is the strict valuation of shares, which to-be-listed companies consider as unfair.
Unfair share pricing
As per the existing rules, the issuer companies will not be able to sell shares on the ATB at prices exceeding 30 per cent above the net asset value.
That is not fair pricing, said Md Iftekharul Alam, chief executive officer of LankaBangla Investments.
Abul Kalam, spokesperson of the Bangladesh Securities and Exchange Commission (BSEC), however, said the market watchdog had imposed the price ceiling to prevent manipulations in the interest of investors.
There are examples of private companies' shares being sold at a much higher price than their NAV outside the secondary market.
For example, Akij Group's concern -- United Dhaka Tobacco Company's paid-up capital was Tk 20 million in 2018, when Japan Tobacco bought it. The face value of each share of Dhaka Tobacco was Tk 100 when Japan Tobacco bought shares at Tk 621,810 each.
The net assets of Dhaka Tobacco were Tk 12.9 billion, with Tk 64,000 net asset value per share and an operating profit of Tk 4.7 billion.
So, Japan Tobacco paid 872 per cent higher than NAV to purchase shares of Dhaka Tobacco because of its earnings potential.
The share price can be determined in consideration of many factors.
According to theory, the value of a public or private limited company can be determined based on assets, market value, or earnings.
The asset-based approach may be appropriate for a company that is not valued as a going concern and may be liquidated in the near-term.
The gold standard for share valuation is based upon the present value of the future cash flow of any company. In this case, valuation is done, taking into account future cash flow, which is determined on the basis of a realistic business plan and capital expenditure assumptions. That means future earnings potential, discounted to the present value of cash flow, determines the value of a company regardless of it being public or private.
This is the backdrop to the platform having only one company listed -- LankaBangla Securities -- and six corporate bonds.
Problem of illiquidity
While there is drought on the supply side, the demand side is also barren.
Transaction is rare on the ATB even for the limited number of securities, said Mr Alam, adding that illiquidity is a deterrent for investors.
According to the rules that were in place until May last year, investors were unable to enjoy capital gains from transactions on the ATB if realised before three months upon the purchase of the shares. The cash would go to the bourse's investor protection fund.
This impractical trading rule, according to experts and stockbrokers, had driven away potential buyers.
"This restriction on booking profits had discouraged investors and entrepreneurs," said Said Mahmud Jubayer, head of product and market development at the DSE.
In May 2024, the regulator brought an amendment to the relevant rules to remove the barrier.
Since its journey, daily turnover on the ATB has been less than Tk 1 million, with many sessions witnessing zero trade.
"We have introduced the ATB to reduce the cost of share transfer by private limited companies," said BSEC spokesperson Mr Kalam. Cost is low due to the absence of stamp duty and relaxed listing requirements, he added.
Not many investors and entrepreneurs, however, see the perks offered by the platform.
Lack of awareness
Firms listed on the ATB are exempted from preparing quarterly financial statements and toeing the line of robust management outlined in the Corporate Governance Code. They can apply with Tk 10,000 application fees and latest audited financial statements prepared following the IFRS standard.
While the major concerns have been share valuation and liquidity problems, the third factor is lack of awareness.
Tanzim Alamgir, founding managing director and CEO of UCB Investment, said the DSE and the BSEC need to take big initiatives to popularize the ATB.
The lack of awareness is also substantiated by the fact that the board's turnover has not improved even after the removal of the bar on realising capital gains within three months after share purchase.
While talking to some successful entrepreneurs, The FE correspondent found that most of them had never heard of the trading platform. Mohsin Hossen, managing director of BD Software & Security System, is one of them.
Mohammad A Hafiz, former president of the Bangladesh Merchant Bankers Association, said "We have a serious lack of awareness about ATB".
If the platform becomes vibrant, angel investors, seed investors, sponsors/promoters of startups/growth companies etc. would find an exit route through the ATB, he said.
In addition to equity and debt-based securities, open-ended mutual funds and alternative investment funds can be listed on the ATB.
farhan.fardaus@gmail.com
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