Move to bring 35pc shares of two stock exchanges into the capital market
Bangladesh Security and Exchange Commission (BESC) has initiated a move to bring 35 per cent of the shares of Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) into the capital markets soon.
The regulatory body has instructed the two bourses to submit a full plan on offloading 35 per cent of their shares by 10 January. The deadline came after a recent meeting with both stock exchanges held at BSEC office in Dhaka.
According to sources at the BSEC, 35 per cent of the shares allotted to general and institutional investors have been kept in blocked accounts for eight years. The BSEC asked the two bourses to inform the former whether there is any barrier to float these shares in stock markets. These shares have been kept in blocked account in accordance with the demutualisation act.
Following the stock market crash in 2010, the government took an initiative to demutualise the stock exchanges as per the recommendations of a probe committee. Implementation of this process started in 2013 but that has not yet been completed as a large portion of stock exchanges’ shares still remain unsold.
Four posts are reserved for shareholders in the DSE board of directors. However, old members of DSE are discharging duties in those posts.
Since shares are not sold to ordinary/general shareholders, no one from outside the stock exchange gets an opportunity to join the board.
According to the demutualisation act, 35 per cent of shares are allotted for general and institutional investors, but the act sets no specific time to sell these shares. That is why there has been no progress on offloading the blocked shares in eight years after the demutualisation act came into effect in 2013. The Chittagong Stock Exchange (CSE) could not also sell its 25 per cent of shares allotted to strategic investors in the past eight years. Sixty per cent of CSE’s shares remain in blocked account while it was 35 per cent for the DSE.
Speaking to Prothom Alo, BSEC commissioner Sheikh Shamsur Rahman said, “We want to float the allotted shares of the two stock exchanges soon to sell these to general and institutional investors. A timeframe has been set for both bourses to submit specific action plan to the commission. As these shares are not being released to the stock market, implementation of demutualisation also gets stuck.”
According to the demutualisation act, shares related to ownership of both stock exchanges are distributed among their members. Forty per cent of the shares are credited to its members. Of the remaining 60 per cent, 25 per cent are for strategic investors and 35 per cent are allotted to general and institutional investors.
The Dhaka Stock Exchange has sold 25 per cent of its shares to a consortium comprising Shenzhen Stock Exchange and Shanghai Stock Exchange of China. Now, 35 per cent of shares remain left. On the other hands, the CSE could not sell its 25 per cent shares allotted to strategic investors. This means its entire 60 per cent of shares that should be sold as per obligation under the law still remain unsold.
The CSE authorities, however, are doubtful whether shares can be sold to general investors before selling the shares allotted to strategic investors. Section 14 (kha) of the demutualization act states the BSEC can propose for the sale of the remaining shares that are kept in blocked account to people or institutional investors without selling the shares allotted to strategic investors.
According to sources at two stock exchanges, the act mentions selling of 35 per cent of shares for general and institutional investors but does not set any specific timeframe on how many years it would be completed. Neither has it said anything specific on methods of selling these shares or whether these shares could be sold to foreign investors.
Officials from both stock exchanges said separate guidelines should be formulated for the sale of these 35 per cent of shares that are kept in blocked account and it has to be done with the approval of the commission.
Wishing anonymity, several officials said process to submit the guidelines to the BSEC would start after formulating these quickly following the recent meeting.
The consortium consisting two Chinese stock exchanges purchased 25 per cent of DSE’s shares in 2018 at Tk 21 each. This money has already been distributed to the shareholders of DSE. Now these shareholders would also receive money that will come from the sale of 35 per cent shares kept in blocked account. Currently, the shareholders receive dividend from these 35 per cent of shares.
The DES declared a 4 per cent cash dividend for its shareholders in 2020-21 fiscal. This dividend will be distributed among shareholders after the approval at its annual general meeting.
*This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Hasanul Banna.