‘Clear communication, careful execution will determine success in idle money deposition’

The capital market and money market are already in fear of many things, and the recent bill for sending all the surplus cash of state-owned entities to the national exchequer has added another point for panic.

It could be other ways if things were clearly communicated in time by the government, according to analysts.

Investors and money market professionals could analyse and confidently decide based on the details of the legal mechanism of the planned process, opined Asif Khan, a chartered financial analyst.

"In the absence of a full picture, people are speculating about adverse effects of this bill," Asif, working as a partner at the EGDE Research and Consulting, an investment research firm, said.

On Tuesday, Finance Minister AHM Mustafa Kamal placed the "Deposition of Surplus Money of Self-Governed Agencies including Autonomous, Semi-Autonomous and Statutory Government Authorities and Public Non-Financial Corporations to the National Exchequer Bill 2020" in the parliament.

It aims to bring the surplus cash balance of dozens of state-owned entities to the national exchequer, which will help the government finance development projects with ease.

The bill is now with the relevant parliamentary standing committee who will submit their report on it within seven days.

The bill, if passed, will enable the government to take a large portion of the state-owned entities' total balance of over Tk2 lakh crore into the national exchequer, nearly one-sixth of the country's bank deposits.

The good and the unanswered points
"Broadly, it [the bill] sounds logical. Because, the government is in need of cash, and many of its entities are sitting on idle cash parked at banks. It is not a wise treasury management to park your cash at a lower interest and later borrowing the same at a higher rate," said Asif Khan.

Most of the target cash-rich entities are government corporations where there are no other co-owners.

"The government can take their surplus cash as it is the full owner of them," Asif Khan argued.

But worries emerged about the state-owned enterprises which are listed with the stock exchanges. Because, they also have minority owners besides the government.

They (minority shareholders) are not sure about what the government is going to do with their company's surplus cash.

The bill reportedly said state-owned enterprises, except for the financial service providers, will be within the scope of the bill.

There are over a dozen of listed non-financial companies some of which are posting higher earnings per share and paying higher dividends with the help of their income from fixed deposit receipt. Over Tk10,000 crore presently lies in their bank accounts.

The government is yet to decide a detailed way for implementing the proposed bill. 

And, people are confused about it and speculating on how things will take place. Will it be something like confiscation? Or, will there be a borrowing and lending mechanism? Or, will it be through one-off cash dividend pay-outs?

Fear of bad consequence and analysts' wish for the best way
At present, the target entities are independently depositing their idle funds with a wide range of banks and financial institutions, which is catering for the banking industries' deposit needs.

Private sector banks are demanding an assurance of securing the government-sector deposits at a lower cost before they ensure the desired interest regime capped within a single digit.

If the government pulls all the possible funds at a time, it may create a serious intra-industry imbalance in deposits at the banking system as the treasury cash is mainly parked in the Sonali Bank or the Bangladesh Bank.

"A slow and gradual process of taking the fund will be the best solution as that will not disturb the money market," said Asif Khan.

According to the proposed bill, the government will let each of its subject entities to assess their retention needs from the cash pile. Grossly, one-fourth of the idle fund that will help the entities carry on operations will be left for them.

"We expect and I am confident that the government will discuss with each of the entities about their future spending and investment plan and take (funds) from them accordingly," said Asif Khan.

Peer country experience of such a move suggests the government can push the state entities to buy treasury bonds and thus take the money from them in exchange for a certain interest.

On the other hand, the government may push the entities to pay cash dividends and that is a good way too. Because, the dividend will contribute to the national exchequer through dividend tax.

Cash dividend would be a much better way for the listed government companies as it will help to boost general investors' confidence.

If the government plans the transferring process to be gradual, the listed government companies can outline a plan to cash out the surplus liquid assets.

The smoother things take place, the better it is for all – the government, its entities, banking system, stock market and its investors.