Bourses call for actions against non-compliant companies

Stock exchanges have requested the market regulator to take actions against the listed companies which failed to comply with the rule of holding minimum 30 per cent shares by their sponsor-directors.

Dhaka Stock Exchange and Chittagong Stock Exchange in letters to Bangladesh Securities and Exchange Commission sought the action against the non-compliant companies. 

BSEC on March 11 directed the bourses to ensure that all the listed companies comply with the rule regarding all-time joint holding of minimum 30 per cent shares by each company’s sponsor-directors.

The bourses accordingly sent letters to the errant companies, asking why they were not complying and directed them to go by the securities laws.

All the listed companies, in reply to the letters, pleaded their inability to comply with the rule for now.

A number of companies mentioned that the definition of sponsor defined in the BSEC public issues rules 2015 made it difficult for them to include their current sponsors among the 30 per cent joint shareholders without changing memorandum of article of the companies. 

According to the BSEC rule, sponsor means any person whose name appears as subscriber in the memorandum and articles of association of a company.

Some companies replied that share prices of their companies soared many folds and it was hard for the directors to buy the shares while some others said that the current business conditions was not suitable for complying with the rule. 

A senior CSE official said that because of the inadequate provision of action against the errant companies the rules could not be enforced strictly.

The directors of listed companies have to have two per cent shares in their respective companies, otherwise his/her directorship would be cancelled but in the case of the 30 per cent shareholdings by the sponsor-directors there is no such strict provision, he explains.

On April 18, Olympic Industries in its reply to the CSE said that the company would rather comply with the punishment provisions than obeying the 30-per cent shareholding rules.

The company in the letter said, ‘To fulfil the 30-per cent shareholding as per laws, an additional 44,64,040 shares of the company would need to be purchased, at a current market price of total Tk 122.23 crore and this would increase further with increased market price of its shares.’

The company further said that its sponsor-directors would not sell or transfer shares and the company would not declare right share until acquisition of the 30 per cent shares of the paid-up capital of the company by its sponsor-directors in line with the punishment provision of the rule.

If the companies would accept the penalty, there would be hardly any compliance with the rules as very few companies would issue right share and very few directors sell or transfer their shares as they would need to maintain the minimum 2 per cent shareholdings, a CSE official points out.

So, both of the stock exchanges requested the commission to take appropriate action against the errant companies, the official said.

The BSEC officials said that the commission would take action against those non-compliant companies, especially those whose directors were not maintaining minimum 2 per cent shares. 

The matter has been referred to the enforcement department of the commission.

Even seven years after the BSEC directive was issued on November, 2011, sponsor-directors of 42 companies are not holding the required shares, show recent data.

The directors of United Airways, Fu-Wang Ceramics, Fu-Wang Food, Intech Limited, Fine Foods and Shurid Industries were jointly holding less than 10 per cent shares of their entities.