Dhaka bourse asked to inspect 23 Z stocks

Infographics: TBS

The Bangladesh Securities and Exchange Commission (BSEC) has asked the Dhaka Stock Exchange to thoroughly scrutinise the overall activities of 23 Z-category companies that have been underperforming and have failed to provide returns to their investors over a certain period.

Alltex Industries, Appollo Ispat Complex, Aramit Cement, Aziz Pipes, Bangladesh Services, Bangladesh Welding, BIFC, GBB Power, Intech Limited, Meghna Condensed Milk, Meghna Pet Industries, and Mithun Knitting and Dyeing Ltd were among the companies named in a letter issued by the market regulator to the Dhaka Stock Exchange (DSE).

National Tea Company, Nurani Dyeing and Sweater, Peoples Leasing, Renwick Jajneswar, Progressive Life Insurance, Ring Shine Textile, RSRM, Standard Ceramic, Safko Spinnings, Shurwid Industries, and Yeakin Polymer Limited are the additional companies facing review.

The frequent occurrence of junk stock mega-fests on bourses, facilitated by the regulator's decision to keep most large and mid-cap stocks hibernating for extended periods, has cornered clean investors.

Stockbrokers, preferring anonymity, disclosed that the market's collective psyche has been unnaturally influenced by excessive manipulation, causing many short-term traders to lose money chasing them at the end of managed rallies. Consequently, clean investors, prioritising adherence to investment principles, have shied away.

Sick companies, grappling with ongoing production challenges, outstanding bills, and loan payments, while their auditors continuously raise red flags for investors, have surprisingly led the gainers for more than a year.

A top official at the BSEC mentioned that around two dozen companies trading in the Z category for a certain period have failed to provide returns to their investors and have also struggled to maintain regulatory compliance.

The commission wants to ascertain the overall status of those companies that perform poorly and fail to declare dividends for years on end, he added.

The official stated that now the stock exchange will inspect these companies and submit a report to the commission. Upon receiving the stock exchange's inspection report, the commission will take the necessary action in this regard.

Recently, the DSE identified 28 companies for downgrading to the "Z" category as per the directive of the securities regulator.

According to the order, companies that have failed to hold the annual general meeting in time, neglected to declare dividends for two consecutive years, have not been in operation for more than six months, or have accumulated losses or negative retained earnings exceeding the paid-up capital are eligible to be classified as Z-category companies, commonly known as junk stocks.

Of these companies, Appollo Ispat Complex raised Tk220 crore in 2013 to expand its business and repay loans. The loss-making company has only recommended an 8% cash dividend for its shareholders since listing.

However, after listing, the company could not operate properly. As of Monday, the share price of the company stood at Tk5 on the DSE. The sponsors and directors of the company collectively hold a 20.24% share of the company.

Nurani Dyeing and Sweater, a sweater exporter based in Feni, raised Tk43 crore through an initial public offering (IPO) for business expansion in 2017. However, the IPO fund of the company turned out to be a fraudulent scheme.

Upon inspection and investigation by the DSE, it was found that over Tk41 crore of the IPO fund was embezzled by the entrepreneurs, who subsequently fled the country.

The company has only recommended a 2% cash dividend for its shareholders since listing. As of Monday, the share price of the company stood at Tk4.90 on the DSE. The sponsors and directors of the company collectively hold a 30.93% share of the company.

People's Leasing and Financial Services, a troubled non-bank financial institution, resumed trading this month after four years. On 6 March this year, the board of the DSE decided to resume transactions.

In July 2019, the DSE halted trading of the NBFI's shares to safeguard investors' interests, prompted by the initiation of a liquidation process due to the company's declining financial condition.