The Dhaka Stock Exchange (DSE) is set to introduce compulsory delisting through amendments to listing regulations to clean up the bourse of non-performing, non-compliant companies.
The existing regulations do provide legal means for delisting on specific grounds - non-payment of dividends for five consecutive years and failure to hold the annual general meeting for three consecutive years, for example - but delisting is not obligatory. A company's exclusion from the main board often depends on the discretion of the securities regulator, which is why many non-performing companies have not only remained on the main board for years but have also created volatility in the secondary market through speculative rallies.
The proposed amendments will provide for a time-bound compulsory delisting process to be followed, including the issuance of a prior notice and hearings before a regulatory decision is reached. Companies will be able to exercise their right to appeal against the delisting decision. The interests of minority shareholders will also be taken into account in the delisting process.
The DSE board of directors has already approved the proposed changes to the listing regulations and sought approval from the Bangladesh Securities and Exchange Commission (BSEC).
The existing regulations also say any listed security "may be" delisted in case of voluntary liquidation or if the company is forced to wind up under court orders, or if commercial operation/production/exploration has remained suspended for three consecutive years.
The prime bourse looks to make delisting mandatory in certain circumstances in order to discipline the market and make it vibrant. If the proposed amendments are passed and brought into effect, the DSE will get the authority to enforce compulsory delisting.
The draft amendment suggests delisting for non-submission of audited financials, negative net worth, inadequate free-float shares or capital, fraudulent activities, and regulatory non-compliance.
A company will also face delisting over its prolonged non-operational status. The DSE has not yet decided on the production suspension period to determine delisting, but the judgement will depend on the reasons behind the suspension.
For example, operations may be suspended due to disruptions to gas and electricity supply or due to financial distress stemming from fraudulent activities by the sponsor-directors or board members. Regulatory treatment will be separate for distinguished cases.
To prevent compulsory delisting, a company will need to come forward with a rehabilitation plan to be implemented within two years under the watch of the stock exchange.
To protect the interests of minority shareholders, the DSE wants to incorporate a provision under which their shares would be bought back by sponsor-directors.
Wishing not to be named, a senior DSE official said general shareholders often purchase shares of non-performing companies without considering the risks.
Such shareholders would be in trouble after a company's delisting. "That's why the DSE wants a provision in the listing regulations to shield minority shareholders [from the outcome of delisting]."
After delisting, a company can also be transferred to the Alternative Trading Board (ATB).
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