CSE eyes DSE listing, pins valuation hopes on upcoming commodity exchange

The Chittagong Stock Exchange (CSE) has proposed listing on the Dhaka bourse to complete the demutualisation process in the absence of self-listing regulations.

If the securities regulator accepts the proposal, the CSE will offload 35 per cent of its shares under the book building method more than a decade after the demutualisation.

As per the demutualisation act, stock exchanges must be listed on their board or the board of the other. There is no specific timeframe for listing. The exchanges' boards may take such a decision when they deem appropriate, but they will have to get approval from the market watchdog.

The CSE wants the share value to be decided taking into account the maiden commodity exchange (CX) that is likely to see a test run next December before becoming fully operational.

In a letter sent to the Bangladesh Securities and Exchange Commission (BSEC) recently, the port city bourse expressed its willingness to get listed within the quickest possible time.

"We do not need self-listing regulations if the regulator allows our company's listing on the DSE," said CSE's managing director M Shaifur Rahman Mazumdar. The formulation of self-listing regulations will take long, he added.

Determining share value

An exchange's main income comes from fees earned from daily transactions and the listing of securities.

The CSE's relevance in equity operations has diminished because of low turnovers and the slimming down of the market size.

The number of listed securities on the CSE's main board is 623, including 331 companies. The overall market cap stood at Tk 7.26 trillion on Thursday.

This is the context when the CSE's major earnings are derived from FDRs (fixed deposit receipts).

For example, the CSE reported a profit of Tk 317 million for FY24. It earned an operating profit of Tk 64 million while its finance income was Tk 392 million.

The CSE has an alternative trading board (ATB) and SME Board, but they are yet to be vibrant.

So, the Chittagong exchange anticipates that the commodity exchange (CX) will help improve its share valuation.

The securities regulator has already approved the rules and regulations of the CSE's CX.

Initially, the CX will facilitate non-delivery cash settlements for three commodities: gold, cotton, and crude oil, with plans to expand to physical settlement of the commodities in the future.

CSE share disbursement

The CSE's move for listing has come at a time when the regulator, the government and the stakeholders have accelerated a move to enhance the depth of the equity market through listing of quality scrips.

The bourse wants to lure foreign investors.

The rules and regulations provide for the transfer of 35 per cent of the exchange's shares to general and institutional investors.

The CSE will not raise capital by offloading its shares. Rather, the ownership of the shares will change.

The rules have not stipulated the eligibility of the recipients of the shares, and so the share transfer is left to the board.

The CSE's board has decided to transfer 20 per cent shares to local and foreign institutions, while the general public will be offered the remaining 15 per cent shares.

But local institutions have no scope of getting the exchange's shares, as there is a provision that the initial shareholders and people and organisations connected to them cannot obtain more than 40 per cent shares jointly.

The initial shareholders have already possessed 40 per cent shares in block accounts.

"Institutions, such as banks, financial institutions and insurers, are more or less connected to the CSE," said the CSE's managing director.

Therefore, they will not be able to bid for CSE's shares, which will pave the way for selling shares to foreign institutions.

The rules also say the stake of an institution cannot exceed 5 per cent.

"That's why our target is to offer 20 per cent shares to four foreign institutions," said Mr Shaifur.

According to the CSE's proposal, the remaining shares will be transferred to general investors through IPO (initial public offering).

The port city bourse said the existing valuation cap of the public issue rules hinders proper valuation. A company's valuation is determined based on its 'fair value', which is derived from the company's five-year weighted average earnings per share (EPS) multiplied by 10, combined with its net asset value per share (NAVPS).

But the company's fundamentals are not reflected in such a valuation process because of the regulatory practices and bad intentions of many bidders.

"We want a special order or waiver here so that the CSE gets a good valuation of its shares," said the MD.

As part of the demutualisation, the CSE has already sold 25 per cent shares to ABG Ltd., a concern of Bashundhara Group, at a price of Tk 15 each.

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