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DELISTING OF FIRMS

Investors suffer, sponsors stay unscathed

India has laws to protect investors' interests in case of a delisting and return their money

Ahsan Habib
There is no law in Bangladesh to protect the general investors of a company, which got delisted from the stockmarket for the failure of the promoters or sponsors.
Even there is no law to create pressure on the promoters of the junk companies to buy back the shares from the retail investors in case of a delisting.
However, laws are there in India to protect the investors' interests and they have the chance to get their money back in case of a delisting.
The issue has come to the fore when Dhaka Stock Exchange (DSE) delisted two companies— Rahima Food Corporation and Modern Dyeing and Screen Printing—for remaining closed for three years.
About Tk 50 crore of general investors' money got stuck because of the delisting and they are in the dark whether and how they will get their money back, according to data from the DSE.
More investors could also find themselves in the similar situation as the DSE has recently sent notices to 15 companies and asked to explain why they failed to pay dividends for at least five years in a row.
The issuance of the notices is the first step for delisting a company and the companies may get delisted if they cannot assure that they would soon start giving dividends, according to DSE officials.
The Bombay Stock Exchange delisted 200 companies in May this year and 222 in July, according to a report of the Times of
India published on August 20.
The Securities and Exchange Board of India (Sebi) that regulates the stock exchanges in the neighbouring country has enacted laws to protect investors in case of a delisting.
According to the Sebi (Delisting of Equity Shares) Regulations 2009, the promoters of the company shall acquire delisted shares from public shareholders.
And the stock exchange will appoint an independent valuer to determine the fair price of a share of the delisted firm.
The Indian law has also made it clear that the promoters of delisted companies must face punishment for their failure.
For instance, the Sebi law states that the promoters of delisted companies shall not directly or indirectly access the securities market or list a company for at least 10 years.
Stakeholders and analysts called for a similar protection for investors in Bangladesh. Otherwise, they said, nothing would be able to stop the errant promoters of companies.
"Why investors are incurring losses when the delisting is the result of the failure of the promoters?" asked Mostaque Ahmed Sadeque, president of the DSE Brokers Association.
He said when a promoter wants to close a business he just distances himself from the business and stops making profit.
The regulator does not even ask the promoters to buy back shares held by the general investors, said Sadeque.
"It's a scam but no one can file a case against such promoters," he said.
M Shaifur Rahman Mazumdar, managing director of the Chittagong Stock Exchange, said the exchange has no tool to make a company accountable for its failure.
"We can only delist the company. So, investors should be careful before investing in a junk stock," he said.
He said the exchange takes the delisting decision for the sake of the capital market.
"But there should be the buyback law," said Mazumdar.
KAM Majedur Rahman, managing director of the DSE, said investors will have to accept some losses as they willingly buy junk stocks knowing that these companies do not have bright future and do not give dividends.
Abu Ahmed, a former chairman of the economics department of Dhaka University, said the smart way of delisting has always been neglected in the country.
He said the regulator should study the delisting procedure of the developed markets. "Maybe, the buyback system can be a way out."
Another option, he proposed, is liquidation but the procedure must be easy and simple.
Saiftir Rahman, spokesperson of the Bangladesh Securities and Exchange Commission, said the companies act has no provision to force a promoter of a listed company to buy back shares owned by the general investors.
He, however, said the buyback option may be incorporated in the proposed companies act.