27 listed cos downgraded to 'Z' category

In a major push to enforce compliance, Dhaka Stock Exchange (DSE) has downgraded 27 more listed companies to the 'junk' or 'Z' category as half of them failed to declare any dividends for two consecutive years and the others did not complete the distribution of approved dividends.

The DSE made the decision on Wednesday in line with a directive issued by the securities regulator on May 20, 2024, effective from today (Thursday).

Of the 27 companies, 22 were shifted to 'Z' category from the 'B' category while the remaining five companies had been in the 'A' category.

The stock brokers and merchant bankers have also been advised to abstain from providing loan facilities to investors for purchasing security of these companies with effect from today, according to a stock exchange filing.

The stock prices of most of these companies plunged on Wednesday even before the announcement of category changes.

According to the BSEC directive, a company will be transferred to 'Z' category if it fails to disburse at least 80 per cent of the declared dividend within the stipulated timeframe.

The companies which could not comply with this directive include Advent Pharmaceuticals, Desh Garments, Beach Hatchery, Indo-Bangla Pharma, Associated Oxygen, Khulna Power, Pacific Denims, Fortune Shoes, Energypac Power Generation, VFS Thread Dyeing, Shepherd Industries, SK Trims, Lub-rref (Bangladesh) and Libra Infusion.

Many of these companies declared nominal cash dividends between 2 per cent and 5 per cent for FY23.

But they failed to complete the distribution of the dividend within one month of holding AGM (annual general meeting). So, they were shifted to the 'Z' category.

Experts say that companies announcing dividends without properly assessing their capacity to make payouts have, in fact, have deceived shareholders.

When asked for comments, former securities regulator chairman Faruq Ahmad Siddiqi said, "When a company declares dividends it cannot pay, it constitutes a form of deception. The securities regulator should investigate this matter."

As per another provision of the BSEC directive, a company will be shifted to 'Z' category if it fails to declare any dividend for two consecutive years.

The companies which have been downgraded for the failure of announcing dividends are Western Marine Shipyard, Phoenix Finance, Olympic Accessories, National Tubes, National Bank, Miracle Industries, GSP Finance, Far Chemicals, Central Pharma-ceuticals, Bangladesh Thai Aluminum, Bay Leasing & Investments, Atlas Bangladesh and Anlimayarn Dyeing.

As per the listing requirement, a company is required to recommend at least 10 per cent dividend to remain in the 'A' category and less than 10 per cent to remain in the 'B' category.

Any company failing to comply with this requirement will be downgraded to 'Z' category.

Deception with investors

Majority of these 27 companies saw their stock prices fall on Wednesday.

Of them, Olympic Industries experienced the highest correction of 9.4 per cent followed by Khulna Power Company (9 per cent), Fortune Shoes (7.7 per cent), Desh Garments (7.1 per cent), and Associated Oxygen (6.5 per cent).

Shepherd Industries, a 'B' category company, is one of the companies which failed to complete the distribution of declared 5 per cent cash dividend in time.

Contacted, its company secretary Mohammad Maruf Bin Wali said they failed to complete dividend distribution because of the fund crisis.

Lub-rref (Bangladesh) is another company that could not complete the distribution of 2 per cent cash dividend within stipulated timeframe. When asked, Its company secretary Md. Moshihor Rahman also gave the same answer: Fund crisis. Commenting on such practices, Md. Ashequr Rahman, managing director of Midway Securities, said the companies actually deceived their shareholders.

He said, "A company's board declares dividends only after getting the audited reports. So, why will a company declare dividends if its audited report does not support the declaration?"

Mr. Rahman said investors will be affected following the companies' failure to complete dividend distributions.

Investors make decisions about taking their positions in a company based on the record date following the dividend declaration. Companies that failed to complete dividend distributions have negatively impacted their price movements. Conversely, a company typically experiences price appreciation after declaring dividends.

Mr. Rahman said the officials' comments regarding the fund crisis are totally irrelevant and they might have used their funds of dividends for other purposes.

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