Delisting of 29 cos to strengthen market further, experts say

The regulator’s decision to get some 29 weak companies delisted from the stock exchanges will strengthen the capital market and make share trading more vibrant, say capital market experts.

Due to weak financial portfolios, the companies concerned have been failing to provide dividends to their shareholders regularly, causing frustration to the investors.

However, the regulatory action taken on Thursday made investors rather happy as it will help them get their stuck money back, they said.

Bangladesh Securities and Exchange Commission (BSEC) on Thursday allowed the delisting of 29 weak companies from the bourses.

While talking to The Business Post, Shakil Rizvi, a director of the Dhaka Stock Exchange, welcomed the regulator’s decision and said this is a globally recognized practice.

“There is no point in keeping the companies in trading floors that have been in poor financial conditions for years. When there is a life, there is a death,” he said.

He further added that the authorities concerned should ensure that the investors get their money back from the delisted companies timely.

Meanwhile, Mahbub H Mazumdar, the chief executive of AFC Capital, a merchant bank, said there is a similar practice in Indian capital market.

“India has similar provision of delisting. Weak companies are delisted by their regulator forcefully. But in Bangladesh, it is done with the consent of weak companies,” he said.

He said the BSEC move will have a positive impact on the market and will safeguard the interest of investors.

Mohammad Rezaul Karim, an executive director and spokesperson of the BSEC, said the companies in question have failed to contribute to the stock indices. That is why, delisting of these companies would not put any adverse impact in the market, rather investors will gain their stuck money back and have an opportunity to reinvest in other securities.

Asked about the exit way of the companies, the BSEC official said there lies a exit policy for delisted firms.

According to the directive issued by the commission last December, the sponsors of these companies will buy the shares held by the public shares and pay them at the prevailing market price.

Process of delisting

According to the BSEC directive, a company can be delisted if it remains out of production for 2 years, incurs losses for three consecutive years, if its losses or loan exceed its paid-up capital, fails to pay cash dividends for three consecutive years and fails to hold AGM for two consecutive years.

When a company intends to get delisted, it needs to apply to the commission through its issue manager.

Upon receiving approval from the regulator, the sponsor directors are obliged to buy the public shares or make an agreement with a third party as assurance for the purchase of the shares.

The BSEC sets a cut-off-date and inform the company formally.

Later, the applicant makes an agreement with the stock exchanges, determines the purchase price of the public shares.

In further development, the exit plan needs to be approved through an AGM or EGM with the presence of 75 per cent of shareholders of any company.