Companies are reluctant to comply with the securities rules of mandatory holding of minimum 30 per cent shares by their sponsor-directors jointly due mainly to having limited enforcement tools on the part of the stock market regulator.
Some companies have recently expressed their unwillingness to follow the rules mentioning ‘silly’ reasons to the stock exchanges when the bourses asked the companies to ensure compliance with the rules.
The Dhaka Stock Exchange and the Chittagong Stock Exchange took the initiative after the Bangladesh Securities and Exchange Commission on March 11 asked them to take immediate moves in this regard.
Olympic Industries and Emerald Oil Industries have expressed their reluctance in complying with the laws amid limited enforcement actions against any violation of the laws.
According to the rules, in case of non-holding of the jointly 30 per cent shares, the sponsors-directors would not be able to sell or transfer any shares until acquisition of the aforesaid amount of shares and the companies would not be able to declare rights share and raise capital through repeat public offer.
On April 18, Olympic Industries in a reply to the CSE said that the company would rather comply with the punishment provisions than obeying the 30-per cent shareholding rules.
The company in the letter said, ‘To fulfil the 30-per cent shareholding as per laws, an additional 44,64,040 shares of the company would need to be purchased, at a current market price of total Tk 122.23 crore and this would increase with any market price increase of its shares.’
The company further said that its sponsor-directors would not sell or transfer shares and the company would not declare right share until acquisition of the 30 per cent shares of the paid-up capital of the company by its sponsor-directors.
On the other hand, Emerald Oil also informed that it could not maintain to hold 30 per cent shares as the company expected to re-appoint one of its retired directors ASM Monirul Islam who holds 2 per cent shares and is settled abroad.
At present, the sponsor-directors of Olympic Industries and Emerald Oil jointly hold 27.76 per cent and 28.42 per cent respectively of the total
paid-up capitals of the companies.
A senior CSE official said that the limited enforcement action against the errant companies was the problem to ensure the implementation of the rules.
He said if the companies accept the penalty, there would be low possibility of ensuring the compliance with the rules as very few companies issue right share and very few directors sell or transfer their shares as the directors require maintaining all time the minimum 2 per cent shareholdings.
The directors of listed companies have to hold 2 per cent shares in their respective companies, otherwise his/her directorship would vacate that forces the directors to act upon the rules while there is no such enforcement provision for 30 per cent shareholdings, said officials of the bourses.
Therefore, few companies responded positively regarding obeying the rules, they said.
The capital market regulator came up with the notification in 2011 after the 2010-11 market crash with a view to increasing sponsor-directors’ share purchasing to stabilise the market
Even after seven years of the BSEC directive under section 2CC of Securities and Exchange Ordinance 1969, sponsor-directors of 42 companies are not holding the required amount of shares, showed the recent data.
The directors of United Airways, Fu-Wang Ceramics, Fu-Wang Food, Intech Limited, Fine Foods and Shurwid Industries were jointly holding less than 10 per cent shares of their entities.
Source: New Age.