Z category to go through massive reform

The Bangladesh Securities and Exchange Commission (BSEC) has taken massive steps to bring the poorly performing listed companies back to the track.

Alongside taking steps to restructure the companies' leaderships, the securities regulator has also decided to bring changes in definition of Z category companies and also how they would be treated in the coming days.

If a listed company fails to pay dividends, fails to arrange shareholders' annual general meeting (AGM) on time, or remains out of operations for six months in a row, stock exchanges put them into the Z category, which is punishing for the company in many ways.

The new definition of Z category

After the 735th  commission meeting headed by its Chairman Professor Shibli Rubayat-Ul-Islam on Thursday, the BSEC said it would issue a new notification based on which the stock exchanges would amend their related regulations to treat and handle Z category companies.

The new notification will dictate that if a company fails to pay cash dividends for two consecutive years, it would go to Z category. The same would be applicable for the companies which fail to conduct AGM for two consecutive years or remain out of operations for six months.

The new definition would say listed companies with net operating loss or even negative cash flow from operations for two consecutive years will be in the Z category.

The companies with negative retained earnings surpassing their own paid-up capital will also be placed in Z category.

Besides, stock exchanges can send any company to Z category with the commission's approval if the company violates securities law.

The Z category stocks settlement cycle would be "T plus three" instead of existing "T plus nine." It means, after buying a Z category stock on Sunday one can sell it on Wednesday when the new notification will be in force.

Board restructuring

In the press release issued after Thursday's commission meeting, the BSEC said to improve the companies' overall condition, the commission would restructure the board of directors of listed companies which have been in the Z category for two or more consecutive years.

Those companies would get 45 days to restructure their respective boards and if they fail to do so, their directors and sponsors would be disqualified to be on the board of any other listed company or market intermediary firm.

In that case, the commission will appoint special auditor and observer to ensure good governance within the specific Z category companies.

If a restructured board fails to improve the Z category companies' overall situation within four years, the stock exchanges would take steps to delist the company alongside taking other legal actions.

Each Z category company must accomplish their shareholders' AGM within the next six months. And all the shareholders' meetings by Z category companies must ensure e-voting or online voting facility, so that shareholders can easily participate in the transformation.

The prudent treatment and transformation

A BSEC official told The Business Standard after the meeting that not all the Z companies have a legacy of underperformance or poor governance. Some are under pressure temporarily because of the ongoing tough business context.

He said the changed definition of the Z category would allow good companies to avert ending up into that category even if they fail to pay dividend this year. It would prove a great leeway to companies which paid cash dividends for the previous fiscal year.

On the other hand, if a company habituated to pay only stock dividends keeps doing the same now, it will face category denomination.

"Really problematic companies and their board would face the music this time," he commented.

After the detailed notification, stock exchanges might put the Z category companies into the immediate spot market to discourage speculation. Later the regulators would initiate board restructuring through inviting other non-controlling shareholders and independent directors, hinted the BSEC official.

"No sponsors or directors of a Z category company can sell, transfer or pledge their company shares and the regulator is going to be tougher on them in coming days," he added.