Regulator rejects issuers' proposals to protect retail investors

The securities regulator has recently rejected a few proposals, including the issuance of placement shares to sponsor directors, considering the interest of general shareholders.

At least three issuer companies proposed increasing their paid-up capital by floating new shares, but the Bangladesh Securities and Exchange Commission (BSEC) turned down their proposals.

The companies also failed to meet the regulatory conditions.

Among the three issuers, Salvo Chemicals Industries wanted to issue 6.4 million shares to sponsor directors through private placements so that those on the board could jointly acquire at least 30 per cent stake in the company, meeting the threshold set by the market watchdog.

Salvo Chemicals set the price at Tk 10 each share, whereas the current market value of the stock is Tk 28 each share. So, placement shares would have cost one-third of the market price.

"It would have been unfair for general shareholders," said BSEC spokesperson Mohammad Rezaul Karim.

The new shares, if approved, would also have dragged the stock down on the bourses and diluted earnings per share (EPS).

Salvo Chemicals reported a profit of Tk 96.61 million for FY23. Its EPS stood at Tk 1.49 for the year.

Meanwhile, Gemini Sea Food had proposed issuing rights shares and Alif Industries sought permission to issue shares worth Tk 2 billion to existing board directors. Both the companies faced rejections from the BSEC.

The shrimp exporter considered floating rights shares at a ratio of 2R:1, meaning two rights shares against one existing share at a price of Tk 60 each, including a premium of Tk 50 per share. The bid was to expand the paid-up capital.

But the securities commission said Gemini's financial strength did not justify the premium. Another reason was the company's failure to explain sales worth Tk 270 million in an investigation by the BSEC, which prompted the regulator to draw a conclusion that the amount represented fake sales.

The third company, Alif Industries planned to issue shares at a price of Tk 22 each to sponsor directors. The market price peaked at Tk 136 per share in May and closed at Tk 93.30 per share on Tuesday.

Retail investors were earlier impacted by the previous commission's approval of 30 million shares issued by Legacy Footwear to sponsor-directors. The shares were priced at Tk 10 each while they were traded at more than Tk 100 per share in the secondary market.

After the issuance of those shares, Legacy Footwear started falling on the exchanges. It fell to Tk 45.40 per share on the Dhaka Stock Exchange on Tuesday.

Meanwhile, Alif Industries sought time extension for subscriptions of its corporate bonds. The plea was declined too.

The BSEC spokesperson said the regulator would examine if a business was capable of utilising money to be raised through such debt instruments before giving its consent.

On September 26, 2022, the previous commission allowed Alif Industries to collect Tk 3 billion through convertible bonds, but the company failed to complete subscription within the stipulated time. The incumbent commission refused to give the company more time for the job.

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