Old is gold at Dhaka bourse

It seems old is still gold at the Dhaka Stock Exchange (DSE).

Over three hundred new companies that entered the DSE in the past four decades could not outshine the first few. GlaxoSmithKline, Linde (previously Bangladesh Oxygen Company), ACI, British-American Tobacco, and Renata still continue to glitter dominantly.

The state-owned Padma Oil and Eastern Lubricant Blenders can also be added to the list of companies shareholders are still happy with because of the good returns on their investment – both in terms of long-term capital gains and robust cash dividend each year.

The Dhaka bourse, after starting its second journey on 16 August 1976 following the post-independence closure, successfully listed the then real blue-chip companies.

Interestingly, there was no securities regulator at that time. The bourse itself used to decide on listing companies, said Rakibur Rahman, veteran stockbroker and a shareholder director at the board of the DSE Ltd.

The post-independence stock market

Dhaka, then spelt Dacca, got its bourse in the mid-1950s and the brokers mainly used to follow the Karachi Stock Exchange for price benchmarking of stocks, said Ahmed Rashid Lali, a second-generation member of the DSE.

The exchange took more than five years after the country's independence in 1971 to resume as the post-Liberation War Bangladesh government was initially pursuing a centralised economy.

"Not necessarily all the old companies have done well, but the ones who have are really doing wonders to investors," Lali said.

Padma Oil, Eastern Lubricant, GlaxoSmithKline BD, Linde BD, and ACI Limited were among the first companies to get listed on the bourse in 1976.

The state-owned Investment Corporation of Bangladesh, Bangladesh Shipping Corporation and multinational tobacco giant British American Tobacco Company Bangladesh joined the DSE a year later.

The National Tea Company and Renata, the descendant of global drugs giant Pfizer, also got listed in the 1970s.

Along with some first generation private sector commercial banks, companies like Reckitt Benckiser Bangladesh, Bata Bangladesh – both are market leaders in their respective fields of toiletries and footwear – entered the market in the 1980s.

Each year, most of the companies are still paying dividends higher than what investors put into their shares during listing, while adding the returns in the form of capital gains has created another legend.

In a report published several months ago, The Business Standard wrote that Renata returned 77 times to its shareholders who bought the company shares in the early 2000s and are still holding those.

Asked how good listings were possible even in the market that was quite immature, Rakibur Rahman said, "At that time, there was no story of accounting and audit frauds, no one used to try to raise money from the market with twisted facts.

"The stock exchange members themselves professionally and religiously facilitated the listings of real businesses like the proven blue chips."

"The ugly practices of faking things during initial public offerings [IPO] appeared gradually, which is unfortunate," he added.

Secrets to success

Investment experts attribute the success of the decades-old blue-chip companies to their respective edges in business, commitment for long-term value creation for shareholders, and also their responsible capital structure that helps maximise per share profits and dividends.

Shahidul Islam, managing director of VIPB Asset Management, believes that the long-standing successful companies in the stock market care about maximising returns on equity in a sustainable way, instead of pretending to be a big bang company before investors.

"This is especially true in the case of most of the multinational companies in Bangladesh. They care about selling quality products, customer satisfaction and market strength," he added.

GSK BD, the listed subsidiary of global vaccine and drugs giant, emerged as the health food drinks seller occupying over 90% market in Bangladesh in later years.

It gave up in pharmaceuticals business here in Bangladesh due to an unfavorable competition from local companies but shareholders are still gaining as the health food drinks business, recently transferred to Unilever, is growing. The company being renamed is still capable of running its money-making machine for shareholders.

Linde Bangladesh with its long legacy here to lead the market of medical and industrial gas still growing in terms of sales and profit, has also been paying high dividends every year.

State-owned companies nowadays may lag behind multinationals in terms of internal control, sustainability, and product edge, said Asaduzzaman Riadh, director and the chief investment officer at brokerage firm United Securities Ltd.  

However, with a strong government back-up and a protected market coupled with their already built asset base, some of them are very attractive to investors, he observed.

Padma Oil Company with its state-backed oligopoly in the gasoline market and monopoly in the jet fuel market has built a net asset 15 times higher than its paid-up capital. The company earns an annual profit at least 3 times higher than its paid-up capital to pay over 100% cash dividends to its shareholders.

Both the investment experts having their professional credentials like Chartered Financial Analyst (CFA) and Financial Risk Manager (FRM) certificates said maintaining the paid-up capital structure prudently has helped all the successful old companies post robust earnings and pay high dividends.

Faruk Ahmad Siddiqi, former chairman of the Bangladesh securities regulator, emphasised listing the successful companies under local ownership and management and called for being selective to list new companies.

Advanced Chemical Industries bear the legacy of British multinational Imperial Chemical Industries, which came under local ownership and management in the 1990s.

Hunger for growth, diversification into potential fields and a commitment to customers helped the company become a leading local conglomerate, said Pradip Kar Chowdhury FCA, chief financial officer of ACI.

After beginning its journey as a drug maker, the company has now expanded into the fields of consumer products, agricultural products, automobile, agro machinery, electronics, and many more.

Abu Ahmed, emeritus professor at the Department of Economics, Dhaka University, also laid emphasis on being selective and friendly enough to pave the way to bourses for companies which can make their shareholders smile even four-five decades later.

Skill, efficiency, business edge – nothing sustains if a company is not a top one in terms of corporate governance, opined asset manager Shahidul Islam who was presiding the CFA Society Bangladesh until the mid-2020.