The securities regulator--Bangladesh Securities and Exchange Commission (BSEC)--has sought explanation from both the stock exchanges why they did not submit reports on the compliance of ‘Z’ category companies.
The stock market regulator also asked the bourses to submit the compliance reports within next three working days, as per a BSEC order issued on Tuesday.
The BSEC in 2020 had asked the Dhaka and Chittagong stock exchanges to submit compliance reports of the listed companies traded under ‘Z’ category.
The bourses, however, did not place any reports in this regard since the issuance of the stock regulator’s notification.
To this end, the commission has directed the DSE and CSE to explain their positions within three working days.
Dhaka Stock Exchange, the country’s prime bourse, now trades 29 junk stocks under ‘Z’ category.
According to the regulatory directive issued in September 2020, the shares of a company will be traded under ‘Z’ category if it fails to distribute cash dividend or hold AGM in two years.
Besides, a company will come into ‘Z’ category if its production remains closed for six months or more.
The BSEC also said that a company having a net operating loss or negative cash flow from operations for two consecutive years would also fall into ‘Z’ category.
A listed company will also be put into this category if its negative retained earnings cross its paid-up capital.
The commission further said it would issue a new notification based on which the stock exchanges would amend their related regulations to treat and handle ‘Z’ category companies.
As per its new order, sponsors and directors holding shares of ‘Z’ category companies will not be able to sell, transfer, hand over and/or pledge them.
The companies, which have fallen into ‘Z’ category for two years, will have to reform their existing board of directors within next 45 working days.
If they fail to do so, those sponsors and directors cannot hold their positions as directors at those companies or any other listed companies or capital market intermediaries.
The stock market regulator will appoint special auditors and observers to ensure compliance and good governance.
After the reformed board is put in place, if they too fail to improve the business within four consecutive years, then the stock exchanges will delist the companies.
As per the BSEC order, electronic voting, or e-voting, is mandatory in annual general meetings (AGMs) and extraordinary general meetings (EGMs) for ‘Z’ category companies as a measure toward improving their overall situation and ensuring good governance.
According to the existing DSE settlement and transactions rules, a listed company needs to declare at least a 10 per cent dividend for its shareholders to be traded under ‘A’ category. If the company declares less than a 10 per cent dividend, it is put into ‘B’ category.
A company is downgraded to ‘Z’ category if it fails to declare any dividend or does not hold an annual general meeting regularly or is not in continuous operation for more than six months.
