The stock exchanges have downgraded three companies to the 'junk' or 'Z' category, effective from Wednesday, as they failed to hold annual general meetings (AGMs) within stipulated time frame.
The companies are Union Bank, Sea Pearl Beach Resorts and Sonali Life Insurance. Of them, Union Bank was shifted to 'Z' category from the 'B' category while Sea Pearl Beach and Sonali Life Insurance were downgraded from 'A' category.
The stock exchanges downgraded the companies in line with the provision 1 (b) of the BSEC directive issued on May 20, 2024, according to a stock exchange filing.
As per the provision 1(b) of BSEC directive, if the issuer of the listed company fails to hold its AGM within a stipulated time, the stock exchanges shall shift the company to 'Z' category.
As per relevant laws, the listed companies have to hold annual general meetings within 45 days of the record date. But these companies failed to do so in violation of securities rules.
None of the three companies sought an extension from the Bangladesh Securities and Exchange Commission (BSEC) to conduct their AGMs, leading to the downgrade.
The stock exchanges have also advised stock brokers and merchant bankers to refrain from providing margin loan facilities to investors for the purchase of shares in these companies.
Following the news, the stock price of two companies dropped on Wednesday. Sonali Life's stock plunged 9.65 per cent to close at Tk 41.2 and Sea Pearl Beach's stock fell 7.76 per cent to Tk 29.7. However, Union Bank's share price remained unchanged at Tk 4.60 on the Dhaka Stock Exchange.
OTHER CRITERIA FOR SHIFTING COMPANIES
to 'Z' CATEGORY
One is that a company will be categorised as Z category if it fails to declare any dividend for two consecutive years.
If any company fails to pay 80 per cent of declared dividends within the stipulated time, it will be downgraded to Z category.
According to regulations, all listed companies have to provide dividends within one month of their annual general meeting, where the dividend gets approval from general shareholders.
If a company remains closed for six months, or if its negative balance of retained earnings exceeds its paid-up capital, the company will also be downgraded to Z category. No sponsor or director of a 'Z' category company, excluding banks, insurance companies, and non-bank financial institutions, will be allowed to transact shares of the company without prior approval of the commission.
Union Bank
The new generation bank got listed on the exchanges in December 2022, by raising Tk 4.28 billion from the stock market under the fixed price method, the biggest IPO in the banking sector until now.
Union Bank, owned by controversial S Alam Group, had scheduled its AGM for 12 August last year. However, the AGM was postponed on 8 August, reportedly due to inactivity among the bank's directors after the fall of the Awami League government.
Union Bank was controlled by the controversial business conglomerate S Alam Group until the ouster of the Hasina-led government in August last year. The group reportedly took a huge amount of money from the bank in violation of banking rules.
The Bangladesh Bank restructured its board in August last year. The central bank on August 27 formed a five-member board of directors to operate the bank, with former Islami Bank's managing director Fariduddin Ahmed as chairman.
After the restructuring of its board, the bank's overall performance has been improving. The new board reviewed the bank's current business operations and reaffirmed its strong commitment to overcoming the challenges.
Sea Pearl Beach Resorts
Sea Pearl Beach was listed in 2019 by raising Tk 150 million from the stock market. The company's 15th AGM for FY24 was scheduled for December 28, but the board postponed the AGM due to unavoidable circumstances.
Earlier, the company declared a 7 per cent cash dividend for FY24. Its revenue fell by 16 per cent to Tk 1.65 billion, while the net profit plunged 60 per cent to Tk 280 million.
Sea Pearl Beach, which began operation in 2015, was built with a bank loan. The owner then issued bonds worth Tk 3.25 billion in 2017, which was fully subscribed by Investment Corporation of Bangladesh.
The company has been indebted to the extent of Tk 6.31 billion, in the form of long-term loans and short term loans. The total liabilities represent 72.03 per cent of the total assets of the company.
Sonali Life Insurance
The life insurer got listed in 2019 by raising Tk 190 million from the stock market under the fixed price method.
The company fell into trouble due to fund embezzlement by its former chairman. In September last year, the government appointed an observer to the troubled life insurer to protect the interests of policyholders.
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