'Z' chaos sends stocks plummeting
The downward trend marked the extension of the falling streak for five consecutive days, resulting in a loss of 164 points
Stock indices declined further today as uncertainty among investors stemming from recent alterations in the criteria for downgrading companies to the "Z" or junk category dampened overall market sentiment.
DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), dropped by 53 points or 0.83% to close at 6,283 points, while the blue-chip index DS30 lost 27 points to settle at 2,129.
The downward trend marked the extension of the falling streak for five consecutive days, resulting in a loss of 164 points.
Meanwhile, the turnover value at the DSE experienced a 14% decline, falling below the Tk1,000-crore mark and settling at Tk924 crore by the end of the session.
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Of the total traded scrips, 107 advanced, 256 declined, and 29 remained unchanged.
The Chittagong Stock Exchange's all-share price index CASPI also saw a decline of 202 points, closing at 18,088.
"Out of the 22 companies, 15 firms' accumulated loss exceeded their paid-up capitals, production at four firms has remained closed for over six months and the rest failed to hold the annual general meeting on time."
Market insiders pointed out that the regulatory body's inconsistent decisions regarding downgrading companies to the junk category have created uncertainty and diminished investor confidence.
Twenty-two companies were officially downgraded to the Z category today following the new order from the Bangladesh Securities and Exchange Commission (BSEC), leading to significant selling pressure on all newly downgraded stocks.
Out of the 22 downgraded companies, GBB Power, Khulna Printing, Standard Ceramic, Safko Spinning, Intech Limited, Aramit Cement, Yeakin Polymer, Alltex Industries, Union Capital, and Premier Leasing topped the list of losers at the DSE.
On Thursday night, the BSEC issued an order changing the criteria for downgrading stocks to the Z category. However, the lack of clarity regarding the effective time in the new order led to confusion among stakeholders.
In a reversal of its previous decision, the BSEC issued a fresh order cancelling the directive from September last year, which had outlined the criteria for downgrading to the Z category. The new order eliminates the earlier instructions for downgrading for failure to pay dividends and introduces revised criteria for immediate reclassification.
As per the new order, companies that have failed to hold the annual general meeting in time, have failed to declare dividends for two consecutive years, have not been in operation for more than six months, or have accumulated losses or negative retained earnings exceeding the paid-up capital are eligible to be classified as Z-category companies.
The order was intended to take immediate effect, but stock exchanges were instructed to seek permission before implementing it again. This uncertainty has created a hangover for the stock exchanges in complying with the new order.
The BSEC later revised the order, stating that the category would not be changed until further dividend declarations. However, firms that have not been in operation for over six months, have accumulated losses exceeding paid-up capital, and have failed to hold the annual general meeting on time will be immediately sent to the Z category.
A managing director of a brokerage firm who preferred not to be named told The Business Standard that changing the category is entirely the responsibility of the stock exchanges. "But the commission suddenly issued new instructions on the Z category overnight without consulting us. The directive was not clear about its effective time."
He further said, "The unprofessional behaviour demonstrated by a regulatory body responsible for overseeing the market is sufficient to erode investor confidence. This lack of professionalism is considered a significant factor contributing to the substantial decline in the stock market on Sunday."
In its report, EBL Securities said the market observed a downbeat vibe throughout the session as sell-offs continued across the bourse since investors focused on protecting their funds from the ailing market as the prevailing volatility in the market has somewhat faded the reinstated investors' optimism.
A senior officer of the Dhaka bourse said following a review of the new order, a list of 48 companies eligible for category downgrades was promptly compiled and submitted to the BSEC on Thursday. "Subsequently, the BSEC provided verbal consent for the downgrade of 22 companies, with the official order being issued yesterday morning. Consequently, these 22 companies have now been shifted to the Z category," he said.
A top official at the BSEC said out of the 22 companies, 15 firms' accumulated loss exceeded their paid-up capital, production at four firms has remained closed for over six months and the rest failed to hold the annual general meeting on time.
