Direct listing policy for private sector projects now uncertain

Highlights:

• Earlier on 8 Dec, a letter from the finance ministry instructed BSEC and BB to make way for direct listing of private sector projects
• The projects should have at least 20% equity with state-owned banks
• But, on Thursday, the finance ministry sent another letter requesting the 2 offices not to act upon previous letter until further notice

The Ministry of Finance on Thursday, asked the Bangladesh Securities and Exchange Commission (BSEC) and the Bangladesh Bank not to proceed with its previous recommendation about direct listing of private sector projects.

A letter – signed by Finance Minister's Private Secretary Dr Md Fardous Alom and sent to Bangladesh Bank Governor and the BSEC Chairman on Thursday – requested the two offices not to act upon the finance minister's previous letter (sent on 8 September, 2020) until further notice.

In the previous letter Finance Minister AHM Mustafa Kamal had instructed the central bank and stock market regulator to pave the way for direct listing of private sector projects sharing at least 20% equity with state-owned banks.

Direct listing is a method to get companies on the bourses without issuing new shares and the existing owners offload some of their holdings based on a price referred by first half hour's auctions on the trading screen.

Getting many state-owned companies directly listed on the stock exchanges in the 2000's, the stock market also at first welcomed some private sector companies. But, due to overpricing and controversy, the BSEC closed down the liberal listing window in 2016, ordering that only government companies can avail direct listing facility and no private sector company can be directly listed.

Government, with a view to reduce lending pressure on banks, is inspiring them to invest in alternative financing tools like bonds, asset backed securities and equities.

For better money market liquidity, the finance ministry's 8 September letter recommended direct listing opportunities of project companies having at least 20% government bank shares.

Even before BSEC changed the rule adopting the minister's recommendation, five star hotel Le Meridien Dhaka's parent company Best Holdings Ltd moved for direct listing with the backing of a quarter of Dhaka Stock Exchange (DSE) officials.

Led by one of its directors, the DSE officials questionably tried to put the controversial direct listing agenda that does not comply with existing regulations in many ways.

Also, the company's capital structure, investment in subsidiaries, sponsor's reputation, and the asking price for each share together sparked controversy.

However, the BSEC ordered the DSE to drop the Best Holdings direct listing agenda, initially peaked for Thursday's board meeting.

Now, after the finance ministry too, at least for the time being, has put its recommendations on hold, the bourse also must explain why it initiated the noncompliant process even before change of rule?