A good number of stocks are going to be downgraded to Z category from February 28 next year for failing to give dividend to shareholders on a yearly basis.
Companies unable to hold annual general meetings on time and out of operations for more than six months will also be punished in the same fashion, according to a recent directive issued by the securities regulator.
The Bangladesh Securities and Exchange Commission (BSEC) said the order issued during the pandemic relaxing rules for the transfer of stocks to Z category would no longer be effective from February 28. Instead, the transfer of stocks would be determined on the basis of the Settlement of Transactions Regulations 2013.
No sponsor or director of Z-category firms, excluding banks, insurance companies and non-bank financial institutions, shall be allowed to transact (buy/sell/transfer) his/her share on any platform of the stock exchanges or outside the stock exchanges without prior approval of the commission, reads the latest directive.
Moreover, the settlement cycle of Z-category stocks shall be T+3, meaning if someone buys any of these stocks on a Sunday, the trade will be settled next Wednesday.
Mohammad Rezaul Karim, BSEC executive director and spokesperson, said the commission had relaxed the rules considering the unusual situation during the pandemic.
"As the pandemic waned and businesses began recovering, the commission repealed the previous directive in the greater interest of the stock market as well as investors."
The securities regulator also asked the bourses to transfer securities that had not been shifted to Z-category for the 2020 rules.
According to the 2020 order, any listed company shall be transferred to Z category if it failed to declare cash dividend for two years in a row, not one year, from the date of declaration of the last dividend, or the date of listing on the stock exchanges, and if it failed to hold AGM for two consecutive years.
The order also required the bourses to take the same action against companies that would have negative net operating cash flow for two straight years. The period will be reduced to one year as the new directive will be brought into effect on February 28.
At least 23 of the listed firms clearly deserved the punishment as per the 2020 order.
Meanwhile, the prime bourse labelled five of the 23 companies as junk stocks on June 25 this year amid widespread criticism.
The companies are Nurani Dyeing & Sweater, Shurwid Industries, Northern Jute Manufacturing Company, Appollo Ispat Complex, and Ratanpur Steel Re-Rolling Mills.
Of the remaining 18 stocks, five have been enjoying the status as belonging to A category and the rest to B category.
To be labelled as A stock, a company has to pay at least 10 per cent dividend (cash plus stock) per share, annualised, to shareholders, while B stocks provide less than 10 per cent dividend (cash plus stock) per share for each year. The A and B stocks should also hold AGM regularly.
Of the A stocks, Renwick Jajneswar did not distribute any dividend for the four years through FY23.
There is no record of cash payment by Ring Shine Textiles on the DSE website. The company issued 15 per cent stock dividend in 2019 for the last time. Miracle Industries did not give any cash dividend after FY20.
CVO Petrochemical Refinery has recommended 5 per cent cash dividend for FY23 breaking a three-year pause.
Of the B category non-compliant companies, Kattali Textile failed to pay any dividend to investors since FY21. Delta Spinners distributed a 5 per cent cash dividend for FY15 for the last time.
Of the other companies, Yeakin Polymer, Regent Textile, Intech, Atlas Bangladesh, Aziz Pipes, and Khulna Printing distributed 1-5 per cent cash dividend for FY20 for the last time.
Zaheen Spinning has recommended only 0.25 per cent cash dividend for FY23 to stop its transfer to the group of junk stocks.
Dividend declaration to manipulate stock price
Eight more companies of A and B categories should lose their existing status as they have failed to disburse dividends, as recommended by the company boards, even after receiving approval of the securities regulator.
The companies are Fortune Shoes, Taufika Food and Lovello Ice-cream, Advent Pharma, Lub-reff, Safko Spinning Mills, Associated Oxygen, Pacific Denims, and S. S. Steel.
It is suspected that the dividends were declared to drive the stock prices up.
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