'R-category' board proposed for long-term non-performing stocks
Settlement for R-category stocks will be seven days, and selling will be restricted for one month to prevent manipulation
A high-powered committee, formed by the finance ministry, has recommended the creation of a separate R-category platform to shift long-term non-functional and non-dividend-paying companies from the main board of the stock exchanges.
The committee proposed that stocks placed in the R-category should face stricter trading rules to discourage speculative and manipulative practices. These include extending the settlement period to seven days and prohibiting investors from selling R-category shares within one month of purchase.
To ensure stability in the stock market, the committee recommended issuing directives mandating implementation by the Financial Institutions Division, Ministry of Finance, Bangladesh Securities and Exchange Commission (BSEC), Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE).
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The four-member committee, led by Anisuzzaman Chowdhury, special assistant to the chief adviser, was formed in March last year.
Other members are Farzana Lalarukh, BSEC commissioner; M Sadiqul Islam, finance professor at Dhaka University; and an additional secretary of the Financial Institutions Division.
Identifying reasons for the depressed capital market, the committee made recommendations on capital market reforms, institutional strengthening, and capacity building of the BSEC, improving the Investment Corporation of Bangladesh (ICB), and promoting good governance in the stock exchanges and submitted the reports to the ministry in November, which was seen by TBS.
Besides these, the committee recommended creating a Tk10,000-crore fund to boost liquidity in the capital market, alongside a Tk3,000 crore fund offering loans to small investors at a 4% interest rate.
It also proposed raising institutional investors' share to 60% and encouraging participation through tax incentives, including tax-free dividend income up to Tk1 lakh.
At present, the DSE runs two separate platforms actively – the SME board for the listed small and medium companies, and the alternative trading board for the trading of not-listed companies besides its main board.
In addition, non-functional firms are traded on the over-the-counter market
Exit plan for non-functional firms
The committee advised the relevant agencies, including the capital market regulator and stock exchanges, to prepare exit plans for listed companies that are unable to continue operations in the future.
To stabilise the market, the committee recommended formulating necessary exit plans for companies that have remained closed for a long time in production and operations, companies that have not paid dividends for an extended period with no prospect of doing so in the future, and rental power plants with no prospects of continuing operations.
According to data from the DSE, 32 companies are currently non-operational, mostly from the textile sector, with closures ranging from four years to as long as 23 years – the longest being Meghna PET Industries, which has remained closed since 2002.
However, the majority of these firms became non-functional after 2020, and some have not paid dividends for years, the data showed.
Besides, data on non-functional firms show that about one-fourth of the total listed companies were downgraded to the Z-category due to factory closures, accumulated losses exceeding paid-up capital, failure to hold annual general meetings, failure to disburse declared dividends within the stipulated timeframe, and other non-compliances.
Despite being in the Z-category, some stocks in this category have seen abnormal price jumps.
A recent example is Zeal Bangla Sugar Mills. The state-owned firm is operational but has consistently incurred huge losses and has failed to pay any dividends for years.
Amid this situation, from 27 November to 9 December last year, Zeal Bangla Sugar Mills' share price nearly doubled, rising to Tk175.20 each from Tk82.40 each. After reaching the peak, its share price declined to Tk129.40 on Sunday.
At present, the DSE has a total of 397 listed companies: 205 in the A-category, which pay over 10% dividends; 82 in the B-category, which pay dividends below 10%; and 110 in the Z-category, which are non-compliant and have not paid dividends.
