Sponsor-directors’ minimum shareholding: BSEC order remains on paper since Nov 2011 [ Tritiyo Matra News ]

Sponsor-directors’ minimum shareholding: BSEC order remains on paper since Nov 2011

Local June 19, 2016

A much hyped directive of the Bangladesh Securities and Exchange Commission regarding mandatory 30 per cent shareholding by listed companies’ sponsor-directors remained on paper as 31 companies’ sponsor-directors are still holding less than the stipulated amount of shares.
The capital market regulator came up with the directive on November 22, 2011 after the market crash in 2010-11 with a view to increasing sponsor-directors’ share purchasing for protecting market from more fall.
According to statistics of the Dhaka Stock Exchanges, devaluation of shares have continued for months since the market crash as the market capitalisation of the bourse continue to slide despite enlistment of new companies.
The commission’s 2011 directive also made it mandatory for sponsors, directors and promoters of a listed firm to jointly hold a 30 per cent stake in the firm.
The BSEC then set a six-month timeframe for the sponsors, directors and promoters, who are now jointly holding less than 30 per cent and individually 2 per cent shares, to acquire the rest of the amount.
A DSE data disclosed in December 2011 showed that 38 companies’ sponsors and directors jointly have less than 30 per cent stakes in their own firms.
Even after four-and-a-half years of the BSEC’s directive under section 2CC of Securities and Exchange Ordinance, 1969, 31 companies’ sponsor-directors are yet to comply with the directive. Only seven companies’ sponsor-directors have so far complied with the BSEC directive.
Even shareholdings by a number of companies’ sponsor-directors were falling far below the stipulated 30 per cent as they continued with share selling in last couple of years despite having legal embargo.
For instance, United Airways (BD) Limited’s sponsor-directors’ share holding was 12.35 per cent in 2012, a BSEC report showed.
According to the entities latest shareholding report of May this year, the company’s sponsor-directors hold only 5 per cent shares of the entity in violation of BSEC’s same notification that disallowed sponsors/promoters and directors from selling or transferring any shares until acquisition of the aforesaid amount of shares.
Neither the commission nor the Dhaka and Chittagong stock exchanges prevent any listed organisations’ sponsor-directors’ from selling shares even they were holding less than 30 per cent shares of the entity.
Besides United Airways, sponsor-directors of Intech Limited, BD Welding, National Tea Company, Fu-Wang Foods and Fine Foods have less than 10 per cent stake on their entities.
After the issuance of such directive, the commission faced a number of cases regarding the legality of the directive. Although a number of cases are pending before separate courts, the BSEC’s directive is still in place.
The commission, however, over the last couple of years did not took any significant action against the companies’ sponsor-directors who were holding less than 30 per cent shares of their companies.
Asked, a BSEC senior official told New Age on Thursday that the commission had no recent assessment on the issue. On the other hand, the directive was issue to tackle market fall and as it has become ‘normal’ in last couple of months, the commission decided to go slow regarding the issue, he said.
BSEC executive director Md Saifur Rahman, however, said that the commission had taken a number of measures against the sponsor-directors of a number of companies who had violated the commission’s order about minimum shareholding by sponsor-directors.
The regulator always scrutinises compliance of the BSEC order while considering rights offer proposals of any organisation as a minimum holding of 30 per cent is one of the requirements for such offering, he said.
Meanwhile, the capital market regulator recently took an initiative to revise the mandatory 2 per cent shareholding requirements by making new slabs based on companies’ paid-up capital.
A proposal has recently been forwarded to the attorney general’s office seeking its opinion in this regard.
According to DSE statistics, sponsors and directors of listed companies sold or transferred 10.27 crore shares in 2011, 10.30 crore in 2010 and 6.20 crore shares in 2009. But they bought only 1.51 crore shares in 2011, 1.18 crore shares in 2010 and 57.75 lakh shares in 2009.
It is alleged that many sponsors and directors sold off shares when the market was bullish during 2009-2010. Even, some of them sold shares without any prior declaration, which was a must in line with securities rules.