Such information holdback on 'significant deviation' deceives stock-market investors

Many listed companies are allegedly hiding 'significant deviation' in any parameter in their respective quarterly financials through information holdback, thereby deceiving stock investors.

Market-insiders said these publicly listed companies were doing so by taking advantage of loopholes in the existing securities rules.

In such a situation, investors are unable to know the real financial and operational strengths of such companies.

"In case of significant deviation in any parameter between the quarterly periods, the issuer company will provide reasons," says a directive from the securities regulator, issued on September 27, 2009.

The same provision is also clearly mentioned in the listing regulations of the stock exchanges.

According to quarterly statement for July-September 2017 many companies witnessed major deviations, ranging from 20 per cent to 84 per cent, in earnings for the quarter.

But any of the companies did not provide the reason for deviation from the norms set in the parameters.

Dr AB Mirza Azizul Islam, a former chairman of the Securities and Exchange Commission, said the companies having large deviation in quarterly statements cannot be termed 'non-compliant' as the 'parameter' and 'significant deviation' are not specified in the rules.

"But the regulator should address the issue for the interest of investors. I think 10 per cent deviation or above can be called significant," said Dr Islam, also finance adviser of the past interim government.

The companies which witnessed large deviations in quarterly statements are, among others, ACI Formulation, Heidelberg Cement, First Security Islami Bank, Islami Bank Bangladesh Ltd and Lafarge Surma Cement.

Talking to the FE, a senior official of the Bangladesh Securities and Exchange Commission (BSEC) acknowledged that there should be a range to specify the deviation as 'significant'.

"However, the regulator will take the issue seriously, considering interests of the shareholders," the BSEC official said.

According to information of Dhaka Stock Exchange (DSE), Heidelberg Cement witnessed 61.52 per cent deviation in EPS to Tk 1.72 for July-September 2017 from Tk 4.47 for the same period of the previous year.

The EPS of Islami Bank Bangladesh declined 33 per cent to Tk 0.31 for July-September 2017 as against Tk 0.46 for July-September 2016. The company's consolidated net operating cash flow per share (NOCFPS) was Tk (11.60), a negative value, for January-September 2017 as against Tk 0.23 for January-September 2016.

The consolidated EPS of First Security Islami Bank declined 44 per cent to close at Tk 0.28 for July-September 2017 as against Tk 0.50 for July-September 2016. The company's negative consolidated NOCFPS stood at 22.49 for January-September 2017 as against negative NOCFPS of Tk 7.14 for January-September 2016.

The consolidated EPS of Square Textile was Tk 0.67 for July-September 2017 as against Tk 1.00 for July-September 2016.

ACI reported consolidated EPS of Tk 2.59 for July-September 2017 as against Tk 4.09 for July-September 2016. The company's consolidated NOCFPS tuned into negative for July-September 2017 against positive value in the same period of the previous year.

The consolidated EPS of ACI Formulation declined 84 per cent to close at Tk 0.11 for July-September 2017 as against Tk 0.68 for July-September 2016. The company's negative consolidated NOCFPS has increased for July-September 2017 as against same period of the previous year.

The consolidated EPS of Lafarge Surma Cement declined 44 per cent to Tk 0.18 for July-September 2017 as against Tk 0.32 for July-September 2016.

Heidelberg Cement witnessed 61.52 per cent deviation in EPS. The company's EPS was Tk 1.72 for July-September 2017 as against Tk. 4.47 for same period of the previous year.

The EPS of BDCOM Online declined 38.46 per cent to close at Tk. 0.24 for July-September 2017 as against Tk 0.39 for July-September 2016. The company's NOCFPS went negative from positive value of previous year.

One company official said they would have divulged such information had there been clear definition of significant deviation in financial statements.

Md. Moniruzzaman, managing director of IDLC Investments, thinks up to 15 per cent deviation can be reasonable.

"In case of reporting even the consolidated earnings, the companies should mention the reasons of deviation. The companies' subsidiaries accounts should also be attached to get idea about operations," said Mr Moniruzzaman.

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