Share market trading of listed firms with halted production raises a red flag

Share market analysts have raised a red flag over potential manipulation, with four listed companies with halted or suspended production continuing to trade on the market.

Halted or suspended production implies a status in which firms are not generating any revenue. Investing in such firms should not be recommended, said the share market analysts, warning particularly small investors to remain cautious about such companies.

"Many traders could knowingly invest in these risky companies for quick profits," said Tariqul Islam, a long-time investor in the Dhaka share market.

Some of these traders may have insider information, enabling them to make timely buying and selling decisions, he said.

"But small investors, driven by the greed to make quick bucks, often end up getting trapped with their investment," he said.

For instance, shares of Aramit Cement Limited, which have faced struggles since the Covid-19 pandemic hit, are currently being traded at Tk 11.70 each.

In a recent inspection by the Dhaka Stock Exchange (DSE) it was revealed that the cement factory had remained non-operational since before last July. Despite repeated warnings from the DSE, the company's shares continue to be traded, with significant trading recorded on August 24 and September 3.

Trading of shares of New Line Clothings Limited continued despite share manipulation taking place involving the company. A share of the company is currently being traded at around Tk 5. The share price had soared to Tk 26 a year ago.

A recent probe by the Bangladesh Securities and Exchange Commission (BSEC) revealed that manipulation worth hundreds of crores occurred involving the New Line shares in 2021. In September this year, the BSEC fined five investors Tk 13.33 crore for their involvement in the New Line share manipulation.

The New Line shares continue to trade actively in the Z-category, which indicates the company's inability to give dividends to its shareholders. Currently, 30% of the New Line shares are held by the company's sponsors and directors, while the rest 70% shares are owned by institutional and individual investors.

"These kinds of stocks are like a thorn in the investors' side," said Asaduzzaman Asad, branch manager of a Motijheel-based brokerage house.

"The regulator should introduce a mandatory buyback law compelling non-performing companies to repurchase their shares. Otherwise, investors will keep falling into these traps," he added.

Another non-operational company, Nurani Dyeing & Sweater Limited, has seen its share price fluctuate between Tk 2.40 and Tk 5 over the past year. Although its operations have been suspended since July, trading in its shares continues.

When asked why investors remain interested in such companies, some traders said investors with prior losses are desperate to make financial recoveries.

"Low-price shares tempt particularly small investors. Many think it's worth taking the risk to profit more with less investment," one investor commented.

Ratanpur Steel Re-Rolling Mills Limited (RSRML) has also stopped production since the beginning of the year. Nevertheless, the company's shares are still being traded, though their price dropped from Tk 15 to Tk 8 in a year.

Market analysts warn that the continued presence of such non-performing firms poses a serious risk to market stability.

"In the past 15 years, many weak companies were granted IPO approvals. Some of the companies ceased production or even disappeared. Allowing such companies to list discouraged quality firms from entering the market, giving manipulators a free rein," said Minhaj Mannan, director of the DSE.

Investment Corporation of Bangladesh (ICB) chairman Abu Ahmed, however, is still hopeful, saying that several fundamentally strong companies are expected to be listed next year.

"Once good companies come to the market, investors' confidence will naturally improve. The market will be vibrant," he added.