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Strategic investor for DSE: Why is the regulator interfering on behalf of a bidder?

  • Published at 02:43 am February 18th, 2018
Strategic investor for DSE: Why is the regulator interfering on behalf of a bidder?
Shareholders and stock market experts do not want to see stock market regulators interfere in choosing strategic investors as it would deprive them of better prices and tarnish their image in the global market. As a part of demutualization, the Dhaka Stock Exchange (DSE) has decided to sell 25% of its shares to a consortium of the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE), considering them strategic investors. However, the premier bourse management has allegedly received pressure from Bangladesh Securities and Exchange Commission (BSEC), the stock market regulator, to award the opportunity to the National Stock Exchange (NSE) of India, which offered a lower price than the Chinese consortium. Seeking anonymity, a DSE board member told the Dhaka Tribune: “If the DSE fails to select the right strategic investor due to such issues, it will not be able to find another investor in the next five years. Ultimately the shareholders and stock investors stand to lose.” “DSE is a member of the World Federation of Exchange. If there is any manipulation in selecting strategic investors, it will tarnish our image with the global investor community. On the other hand, interference from the regulator will also reflect badly on BSEC as a member of the International Organization of Securities Commissions (IOSCO),” he said. “As a regulator, BSEC should not favour any company. It should only consider the technical and financial capacity of the investing company for the sake of shareholders as well as stock investors,” AB Mirza Azizul Islam, former BSEC chairman told the Dhaka Tribune. “If there is more than one company vying to become a strategic investor, the eligible company will be the one that is offering a higher price,” said Mirza Azizul. We should not award opportunities to companies on the basis of irrelevant factors and vested interests as it may dampen investors’ confidence, he added. Abu Ahmed, an honorary professor of economics at Dhaka University, said: “A qualified and eligible strategic partner is extremely important for investors as it can offer better dividends and help reach the goal of becoming a matured and developed stock market.” In recent trading sessions, the market has seen index falls due to confusion among investors about the selection of a strategic investor, who is to play an important role, he said. For the sake of DSE investors and shareholders, the regulator should remain neutral, he added.

Reasons for choosing the Chinese consortium over the Indian body

In response to the DSE’s offer, the Chinese consortium and the NSE placed their proposals to buy 25% shares of the DSE and become a strategic investor. In their proposal, the Chinese consortium proposed to buy 450 million or 25% shares of the DSE at a rate of Tk22 each. It also offered technical support of Tk307 crore and asked for a seat on the board, adding that it would not seek any return on its investment for a period of 10 years. On the other hand, NSE offered Tk15 per share for the same number of shares and demanded two seats on the DSE board. The Indian body did offer technical support, but it did not clarify how much money it would spend. Considering the best offer in terms of value and technical support, the board unanimously chose the Chinese consortium. Moreover, the NSE failed to show take approval of the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India, which are necessary to transfer funds to Bangladesh, a source at DSE said. “The DSE MD went to India to talk about regulatory approval for the NSE, but the concerned personnel of the company did not listen to him or show any relevant documents,” a DSE board member told the Dhaka Tribune.

Possible reasons for regulator’s interference

When the NSE came to know that they had lost the battle, they tried to find other ways of becoming a strategic partner of DSE. Sources say that Managing Director and Chief Executive Officer of the NSE, Vikram Limaye came to Dhaka last week and met with the chairman of the BSEC. After the meeting, the BSEC chairman called the DSE MD and indirectly put pressure on the management to revise its proposal and give the investment opportunity to the NSE. The sudden visit of NSE MD raised questions among stakeholders as after the visit, some officials of the regulator are trying to influence the DSE board to change their decision, a DSE board member wishing to remain anonymous told the Dhaka Tribune. “Any allegations of coercion in selecting strategic investors is not true. We are working for the development of the stock exchange. We will accept the proposal that the DSE posits,” BSEC chairman Professor M Khairul Hossain told the Dhaka Tribune. However, as a regulator, the commission will scrutinize that rules are followed when awarding the strategic investment tender, he added. DSE management are to meet today to finalize the proposal and send it to the regulator.

What stakeholders want

“Is there any logic in accepting the Indian proposal and ignoring the Chinese proposal which offers a considerably higher amount along with other incentives including technical support of Tk307 crore?” Mostaque Ahmed Sadeque, president of the DSE Brokers Association (DBA) told the Dhaka Tribune. As shareholders, our demand is for the DSE to involve strategic investors who will be better for the market and have the capacity to make it attractive to investors, he added. There is a conflict between India and China over investment in Bangladesh, but we cannot be the victim of this conflict, said another shareholder of DSE. He further suggested that there was definitely something fishy going on. In recent years, India and China have been in a race to grab the Bangladeshi investment market, which is creating competition among the businesspeople as well as the governments.