Companies seek shield from category downgrade in bourses

The pandemic-hit businesses are less likely to continue dividends at a similar rate this year.

Listed companies have requested the securities regulator for an order not to downgrade their stock category in the bourses this year.

Bangladesh Association of Publicly Listed Companies (BAPLC) in a letter to the Bangladesh Securities and Exchange Commission (BSEC) on May 5 said that normal business activities of all companies - including those listed on the stock market – have come to a grinding standstill due to the coronavirus pandemic and subsequent general holidays.

Despite having almost no production and sales, listed companies also have to continue fixed expenses including salaries and rents.

BAPLC President Azam J Chowdhury told The Business Standard, "Many of our association members have stated their business situation and proposed for a policy that would not downgrade their category in stock exchanges. We have conveyed the request to the securities regulator along with some other significant points."

Stock exchanges in Bangladesh categorise listed companies. Regardless of their mode – cash or stock dividends, companies have to pay at least 10 percent dividends to stay at A category. If the dividend is less than 10 percent, a company is put into B category for the particular year, while a company is thrown into Z category for failure to pay any dividend or hold an annual general meeting in time or remain out of operation for more than six months.

Alongside an impact on listed companies' public image, the categorisation has impacts on their stock prices as it is one of the criteria for availing margin loans. Settlement of Z category stocks takes a stretched period to accomplish and reduce the liquidity of the stock.

In this tough time, more retention from profits would help efficient and well-governed companies consolidate better to enhance future capability for higher dividends. Hence, the proposal is a good one, said chartered financial analyst (CFA) Nafeez Al Tarik, the chief executive officer of Asian Tiger Capital Partners Asset Management.

The BAPLC also requested the BSEC for relaxations in criteria for initial public offerings and issuance of right shares, at least which are in pipeline.

"During the unusual time of the pandemic, that would be great if the BSEC considers and relaxes things. We recommended mutual discussion with issuer companies," said BAPLC president.

The Securities and Exchange Board of India (SEBI), at the beginning of a lockdown, has relaxed criteria for seeking capital from the market, including a reduction in mandatory interval between public offers by the same company.

Nafeez believes that in Bangladesh, right share offers might appear as a burden on investors who are already in a tight corner because of a long stretched downtrend.

"Many would find it difficult to pay cash against the right offers. Thus, repeat public offerings (RPO) might be a better option for listed companies to raise further capital from the market in coming days," he suggested.

The BAPLC has also written to the BSEC to request the Bangladesh Bank for a policy not to treat any listed company as loan defaulter in cases of nonpayment of bank loans until December this year, which is until June currently for all bank clients.

BAPLC also sought BSEC's active roles so that the listed companies easily received concessional loans under the government-declared stimulus package.

In the letter, BAPLC said listed companies have a unique position in the country's economy as those involve hundreds of thousands of general shareholders – mainly small investors.