Since losing their 'A' category status, three non-performing companies saw their steep price fall, becoming the top losers of the last week on the Dhaka Stock Exchange (DSE).
Additionally, three other companies that are still in the 'B' category faced the same fate as they are set to be downgraded to 'Z' category shortly.
The three top losers -- Northern Jute Manufacturing Company, Shurwid Industries, Ratanpur Steel Re-Rolling Mills -- have long existed in the 'A' category under 'false appearance', despite their non-compliances with the listing provision. They were sent to the 'Z' category on June 25.
These companies experienced a decline in share prices of more than 22 percent over five trading sessions of the last week.
To avoid the complications associated with 'Z' category companies, such as increased trading cycles and liquidity shortages, many investors have sold their holdings.
Experts have stated that the significant decline in non-performing companies is justified, as their previous abnormal price increases were irrational.
According to Md. Ashequr Rahman, the managing director of Midway Securities, the main reason behind the sharp price correction is the downgrading of these companies.
'Z' category companies have increased trading cycles, like T+3, and it is not possible to purchase shares of companies using the sales of 'Z' category shares. However, it is possible to do so with shares of 'A' category companies, he said.
The liquidity flow for trading 'Z' category companies is not as smooth as it is for 'A' category companies, leading many investors to exit these downgraded companies.
This situation also applies to companies that are expected to be downgraded to the 'Z' category.
Out of the top 10 losers for the week, six companies were non-compliant due to reasons such as not distributing cash dividends for two consecutive years, being out of operations for more than six months, or having pending annual general meetings (AGMs).
The DSE has downgraded a total of five companies, including Northern Jute Manufacturing Company, to the 'Z' category after the regulator sought an explanation from the stock exchange regarding its non-compliance with category changes.
Despite not fulfilling the requirements for their existing categories, three other losers -- Khulna Printing & Packaging, Yeakin Polymer, and Central Pharmaceuticals -- have remained in their respective 'B' category.
Of the three companies which have been downgraded, Northern Jute Manufacturing Company topped the losers' chart, declining 22.35 per cent last week.
Two other companies -- Shurwid Industries and Ratanpur Steel Re-Rolling Mills -- shed 12.44 per cent and 19.79 per cent of their prices respectively last week.
The factory of Ratanpur Steel Re-Rolling Mills has been closed for more than two years, while production at Shurwid Industries has been halted since March 2020. However, they were not downgraded to the 'Z' category in a timely manner.
These companies witnessed abnormal price increases in May and June of this year.
The share price of Ratanpur Steel Re-Rolling Mills surged 40 per cent in May and peaked at Tk 23.3 on June 4 while the share price of Shurwid Industries jumped 54 per cent and peaked at Tk 21.6 on May 25.
No financial disclosure of Northern Jute Manufacturing Company is available on the stock exchange's website even as the company experienced a price hike of 68 per cent and peaked at Tk 336.7 on June 4.
These three companies also experienced sharp price correction between 18 per cent and 30 per cent from their peak position till the closing session of the previous week.
These three companies existed in the 'A' category untill June 24 without fulfilling the regulatory requirements.
The share prices of three other companies -- Khulna Printing & Packaging, Yeakin Polymer and Central Pharmaceuticals, which are set to be downgraded to 'Z' -- declined between 8.53 per cent and 10.95 per cent in the five sessions.
Meanwhile, the Bangladesh Securities and Exchange Commission (BSEC) has asked the Dhaka bourse to explain their position for not downgrading the companies to 'Z' category on time. The deadline for submitting the reply was June 4.
The regulator said 'false appearance' of the companies is misleading to investors and the DSE has violated the regulatory directive by not placing the companies to the 'Z' category.
Asked, its Managing Director M Shaifur Rahman Mazumadar said the stock exchange mentioned in its reply that they operate in accordance with regulatory instructions and informed the regulator of the companies' status but their transfer to the 'Z' category was delayed as they did not receive reply regarding its next step from the regulator on time.
Insiders said that many investors may have purchased shares of these companies based on their ‘A’ category status, only to be affected by the sharp price fall when their false appearance was exposed.
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