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Equity market to expand as 29 state-run cos eye listing

BSEC sent a letter to the PMO in January, ICB Capital Management signed deals as issue manager with 3 firms

MOHAMMAD MUFAZZAL | March 30, 2023 00:00:00

The securities regulator has identified 29 state-owned companies whose listing on the stock exchanges can help expand the market and create new opportunities for investors to inject funds.

A letter was sent to the Prime Minister's Office in January with a request to facilitate the inclusion of the companies in the equity market.

The Bangladesh Securities and Exchange Commission (BSEC) prepared the companies' list following a research on their business performance, profitability, and their potential to contribute to the market's growth.

"Profitability is the first eligibility criterion", said BSEC Executive Director Mohammad Rezaul Karim, of a company to go public. "We have selected them based on information found on the websites and accounts."

The regulator has put emphasis on bringing profitable state-owned corporations to the equity market, Mr Karim added.

ICB Capital Management has already signed agreements with three of the 29 organisations -- Gas Transmission Company, BR Power Zone, and Bangladesh Telecommunications Company Limited (BTCL) -- to support them in offloading shares.

"The companies are at an advanced stage of offloading shares," said Mazeda Khatun, chief executive officer of ICB Capital Management, a subsidiary of the government-run Investment Corporation of Bangladesh.

ICB Capital Management is in discussion with Northern Electricity Supply Company and Ashujang Power Station Company too to conclude deals as their issue manager.

"The government is positive about the regulatory move," said Ms Khatun.

Most of the companies selected by the regulator for listing are linked to gas and power while the rest are operating in the areas of insurance, refinery, cables, telephone, drugs and alcohol.

According to latest yearly data extracted by the BSEC, 26 of the 29 companies made annual profits up to Tk 23.17 billion. The three others suffered a loss.

Jiban Bima Corporation gained a profit of Tk 23.17 billion, followed by Karnaphuli Gas Distribution Company Tk 11.88 billion, Northwest Power Generation Company Tk 9.1 billion, Biman Bangladesh Airlines Tk 4.35 billion, and Sadharan Bima Corporation Tk 2.38 billion.

The listing of these organisations is expected to restore investors' confidence in the market, sources in the BSEC say.

Experts and investors have long been pushing for such a move.

Expected outcome

The government has the view that the state-owned companies, if listed, will have to go by good corporate practices. They will also draw foreign investments.

The reinvestment pressure on the treasury will ease and the government will be able to divert the money to other development works.

From the moment the companies go public they will have to release data of their business performance on a regular basis, which will ensure transparency and make them more compliant.

Asif Khan, chairman of EDGE Asset Management, said the government has huge scope of increasing corporate governance at the state-owned entities by offloading shares.

What will protect investors' interest?

He, however, warned that listing of profitable companies would not be a good enough job to draw investors to the market. "Investors' interest will have to be protected through a proper dividend policy."

There are 22 state-owned entities already listed in the country's stock market.

They include Investment Corporation of Bangladesh, Titas Gas Transmission & Distribution Company, Padma Oil Company, Power Grid Company of Bangladesh, Jamuna Oil Company, National Tea Company and Bangladesh Services.

Moniruzzaman, managing director of IDLC Investments, said sometimes any abrupt policy change affects a company's profitability and shareholders' return on investments in the company.

"Sometimes, the boards of listed state-run companies are not aware of the policy changes done by higher ups."

The consent of the minority shareholders should be taken before changing policies for the listed companies, necessary for the protection of investors' return, added Moniruzzaman.

For example, the net profit of TITAS Gas declined 12.6 per cent in July-December of FY22 compared to the same period of the previous fiscal year because Bangladesh Energy Regulatory Commission (BERC) had reduced the company's distribution margin from 0.25 to 0.13 per cubic meter of gas.

The market share of the listed state-run companies in the Dhaka Stock Exchange (DSE) is between 0.1 per cent and 1.7 per cent, according to IDLC Securities.

Of the companies, the government has the lowest stake of 4.30 per cent in National Tea Company and the highest stake 99.68 per cent in Bangladesh Services.

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