FE REPORT
The capital market reform task force has recommended direct listing for multinational firms and large companies, with an annual turnover surpassing Tk 10 billion, in addressing the dearth of quality stocks.
Currently, only state-owned enterprises are given the opportunity of direct listing on the stock exchanges.
The task force also proposed slashing the minimum offload requirement to 10 per cent stakes from the existing 25 per cent for direct listing. "It will make it easier for good companies to enter the market," reads a report submitted to the securities regulator.
Moreover, mandatory listing has been proposed for large corporations having outstanding bank loans more than Tk 10 billion. The Bangladesh Bank may issue instructions to all banks in this regard.
Many well-performing companies tend to go for easy bank loans instead of raising money from the capital market for business expansion.
The task force has also recommended amending the public issue rules to modernize regulatory frameworks, enhance market efficiency, and ensure transparency in the capital market, which, it believes, will attract companies with good track records.
A report was submitted to the Bangladesh Securities and Exchange Commission (BSEC) last week, with a set of recommendations, including changes to IPO and related rules, so that good companies feel encouraged to go public.
"There is a dearth of good companies in the equity market," said Rupali Haque Chowdhury, president of the Bangladesh Association of Publicly Listed Companies (BAPLC) last week at a seminar.
In the past 15 years, 134 IPOs have been floated, while nearly one-third of the stocks have been labelled as junk stocks for the companies' poor performance, according to the DSE Brokers Association of Bangladesh (DBA).
Owing to a few growth companies being listed in the market amid mismanagement, it fails to generate enough income for investors. As a result, the stock market shrank by 38 per cent in real terms in 15 years, said Saif Uddin, senior vice president of the DBA while presenting a keynote paper last month.
Currently, around 27 per cent or 97 firms of all listed companies (360) are junk stocks, according to the Dhaka bourse.
Also, more than 0.2 million companies are outside the equity market, as per the Registrar of Joint Stock Companies and Firms.
The number of investable securities in the secondary market is very low as good non-listed companies are reluctant to go public amid a lack of incentives and easy access to bank loans.
Nearly 200 multinational companies have been doing business in Bangladesh for a long period but most of them are yet to get listed in the stock market. Only 13 companies are in the equity market.
To increase the depth of the market, the regulator must draw well-performing local companies and multinational organisations to the market, said Mrs Chowdhury.
A large number of small-cap companies having weak fundamentals are one of the major reasons behind the volatility in the equity market. To reduce the volatility, the task force suggested listing of large-cap companies.
The committee recommended setting a minimum pre-IPO capital requirement at Tk 300 million under the fixed-price method and Tk 500 million under the book-building method.
Currently, the minimum pre-IPO paid-up capital is Tk 150 million under the fixed price method while the amount is Tk 300 million under the book building method.
"Usually, the bigger companies are better governed," said the task force in a statement issued on Thursday.
Need incentives for good IPOs
Five years ago, the tax rate gap between listed and non-listed companies was 10 percentage points, which came down to 5 percentage points last year despite repeated requests from market stakeholders for an expansion of the gap.
As a result, the flow of initial public offerings (IPO) dried up; not a single company floated an IPO in 2024. To make the secondary market vibrant, the regulator needs to create scope for new IPOs.
"The government should provide policy support and tax incentives to inspire multinational firms operating in Bangladesh to join the stock market," said Mrs Chowdhury, also managing director of Berger Paints Bangladesh.
Berger listed in 2006 when the tax gap was 15 percentage points.
Consistent and long-term fiscal policy is also necessary to lure multinational companies to the market.
Mrs Chowdhury said non-listed companies were getting more benefits than their listed peers as they could take advantage of the loopholes of the Companies Act 1994.
BSEC meets with local conglomerates
In October last year, the new BSEC Chairman Khondoker Rashed Maqsood held meetings with the representatives of several top conglomerates to inspire the listing of their companies.
The BSEC chief sat with Mostafa Kamal, chairman of Meghna Group of Industries, Md. Hasan, managing director of City Group, and Mohammed Akhter Parvez, a director of PHP Group.
Meghna Group, City Group, and PHP Group have companies in industries, including chemicals, cement, real estate, insurers, health and shipping.
Although Walton Hi-Tech Industries and a part of Pran RFL are listed, the companies' major businesses have remained as privately-run enterprises.
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