What will happen to the general shareholders of the five Shariah-based banks currently in the process of merger is a major question now dominating the stock market.
The concern arises because all five of these banks are listed on the stock exchange. As the merger moves forward, stakeholders in the market are questioning what fate awaits individual investors — and so far, no clear answer has emerged.
In this situation, the Bangladesh Securities and Exchange Commission (BSEC) has said that the merger process must proceed in a way that protects the interests of general investors. In a letter to Bangladesh Bank Governor Ahsan H Mansur, the BSEC has called for ensuring the protection of investors’ interests.
Bangladesh Bank has initiated the merger of five private banks that fell into financial distress due to widespread irregularities during the rule of the ousted Awami League government. The banks are First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, and EXIM Bank.
Among them, the first four were controlled by the controversial business conglomerate S Alam Group, which was closely linked to the Awami League government. EXIM Bank was controlled by another Awami League–affiliated businessman, Nazrul Islam Mazumder. All five are publicly listed companies.
The Interim Government’s Advisory Council approved the merger proposal last Thursday. According to the plan, the five banks will be merged into a single new entity with an authorised capital of Tk 400 billion (40,000 crore) and a paid-up capital of Tk 350 billion (35,000 crore.)
The new bank will assume all assets and liabilities of the five institutions. Of the paid-up capital, the government will contribute Tk 200 billion-Tk 100 billion in cash and another Tk 100 billion to be raised through issuing sukuk bonds.
However, it has not yet been decided what will happen to the ordinary investors who hold shares in these banks once they are dissolved and merged into a new bank. This uncertainty has triggered anxiety among investors. Following the news of the merger, the share prices of these banks have continued to fall in the market.
On Sunday, three of the five—Social Islami Bank, EXIM Bank, and First Security Islami Bank—were among the top ten losers on the Dhaka Stock Exchange (DSE), with their shares dropping between 7 per cent and 8.5 per cent. The share prices of Global Islami Bank and Union Bank also declined that day.
When asked, Saiful Islam, president of the DSE Brokers Association (DBA), told Prothom Alo that as per the rules, when a company’s liabilities far exceed its assets, shareholders usually get nothing if it is liquidated or shut down. Judging from the progress of the merger so far, it seems there is no package in place for shareholders. Whatever the case, the authorities should make things clear to investors.
In its letter to the governor, the BSEC urged protection of investor interests. In the letter dated 23 September, the commission noted that general investors are not responsible for the banks’ current financial condition. It recommended several steps to safeguard them, including assessing not only the balance sheet assets but also the value of licenses, branch networks, customer bases, human resources, and brand value.
It also proposed determining a sale value for the banks to protect investor interests, seizing the properties—both movable and immovable—of those responsible for the banks’ financial distress to recover money, and using that amount for investor protection.
The BSEC further suggested that in determining the merger ratio, the higher of a bank’s market value or face value of shares should be used to ensure investors’ capital is protected. The regulator also advised against delisting the banks from the stock market before investor interests are adequately secured.
Meanwhile, sources at Bangladesh Bank said that before finalising the merger process, the central bank will consult the BSEC. The issue of protecting general investors will be discussed before taking any further steps.
Currently, the shares of all five banks are trading below their face value. On Monday, First Security Islami Bank’s shares were priced at Tk 2.70 on the DSE. The shares of Social Islami Bank were trading at Tk 4.30, Union Bank at Tk 1.70, Global Islami Bank at Tk 1.80, and EXIM Bank at Tk 3.60.
When asked about investor protection, BSEC spokesperson Abul Kalam told Prothom Alo that a letter has been sent to the BB governor urging measures to prevent general investors from being harmed. The BSEC will take the necessary steps in this regard.