BSEC returns power to bourses to downgrade firms

Infographics: TBS

The stock market regulator, Bangladesh Securities and Exchange Commission (BSEC), has again returned the power to downgrade weak and non-compliant firms to the Z category to the stock exchanges after only about three months.

In a directive issued today (20 May), the commission said from now on, the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) can downgrade stocks without prior approval of the BSEC.

The BSEC directive also revised some criteria for downgrading companies to the Z category while retaining some previous conditions.

According to the directive, companies that fail to meet the required criteria will be downgraded after 2 July.

Before September 2020, the bourses could change the categories of companies that failed to meet securities rules and regulatory directives.

However, in light of the challenging business and profit scenarios during the Covid-19 pandemic, the BSEC issued a directive barring the bourses from downgrading stocks to the Z category.

Additionally, the commission decided to halt the downgrade to the Z category for companies even if they failed to meet the required criteria according to the settlement of transaction regulations.

Since then, the bourses could change the category of companies with the approval of the commission.

In September last year, the commission returned the power to downgrade to the bourses again. However, in February this year, the regulator again revoked this power.

Today, the commission once again restored the power of the bourses to downgrade companies to the Z category.

As per the new directive, a company that fails to pay dividends for two consecutive years or fails to hold the Annual General Meeting (AGM) on time will be downgraded to the Z category.

Additionally, if a company remains out of production for more than six months, it will be moved to the Z category.

However, the category will not change if the closure is due to balancing, modernisation, rehabilitation, or expansion (BMRE).

If accumulated losses exceed its paid-up capital, the company will be downgraded to the Z category. If the company declared dividends, including interim, from current profits in the last fiscal year, its category will not be changed, according to the order.

A new condition added states that if any company fails to pay off declared dividends or disburse at least 80% of the declared or approved dividends within the stipulated time frame, it will be transferred to the Z category.

Additionally, no sponsor or director of a Z category company, excluding financial institutions, shall be allowed to transact any shares without prior approval from the commission.

The trading settlement of Z category stocks will be completed in three days, whereas the settlement cycle for other stocks is also three days.

Currently, there are 56 companies in the Z category.

Investors are not eligible to take margin loans to buy shares of these companies, and share trading is settled as per T+3.