A board meeting of the Dhaka Stock Exchange (DSE) planned for next week will ask shareholders to approve a new strategic partnership with a Chinese consortium comprising the Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE).
The Dhaka Tribune has obtained a copy of the Chinese proposals, which details how the consortium is planning to support the DSE as a strategic investment partner.
Among the headline proposals of the estimated $37 million project, the Chinese consortium is offering to develop a SME market, assist in product diversification, and jointly operate the V-Next alliance program in Bangladesh.
It also proposes to assist the DSE in mapping information disclosure and investor service automation framework, developing human resources, and providing technological support with a view to developing the DSE portfolio.
“As experienced operators of two of the world's leading stock exchanges, SZSE and SSE have been instrumental in shaping the landscape of China's rapidly growing capital markets,” DSE Managing Director KAM Majedur Rahman told the Dhaka Tribune.
“We believe the Bangladesh economy shares a similar trajectory (to that of China) and the experience and technical knowhow we have accumulated over the years will enable us to assist DSE most appropriately in coping with the challenges and opportunities in its next stage of growth.”
SME market development
The SZSE and SSE consortium is offering to share its experience in market design, information disclosure, supervision investor suitability management, IPO promotion and other areas of interest for development of an SME market in Bangladesh.
“The consortium, relying on its extensive experience in fostering an efficient, accessible capital market for the SMEs, can assist DSE in capitalizing on this opportunity and better serve the needs of its SME constituents,” KAM Majedur Rahman said.
SZSE has developed a financing supply chain for start-up companies, involving venture capital, investment banks, small-loan companies, commercial banks and other financial intermediaries to help start-ups.
SZSE also worked with the government to design incentive programs and public policies to offset market failure resulting from information asymmetry which is often associated with small companies.
By fostering a cross-fertilizing environment, the SME market has flourished in China. SZSE would like to share with DSE its extensive market development experience and associated regulatory practices and technology.
SZSE is offering to assist DSE in the development of index-based products, bonds and asset-backed securities (ABS), and in designing, promoting and showcasing Bangladeshi indices in China.
Working with Chinese wealth management firms, SZSE is offering to promote bond Exchange Traded Fund (ETF) and other funds in China tracking Bangladesh indices. SZSE is also offering to promote bond issuance by China-invested projects at DSE and help in designing ABS products.
The Chinese Consortium is also proposing to assist in developing a derivatives market at the DSE.
The SZSE is offering to jointly operate the V-Next Alliance program in Bangladesh to match ambitious growth companies with capital in Bangladesh and China. The objective is to build an ecosystem across the two countries to integrate financial intermediary services, institutional investors and projects.
The V-next has achieved remarkable success in China, with over 11,000 institutional qualified investors registered and in excess of a 20% success rate in matching projects to capital.
Information disclosure and investor relation service automation framework
SZSE is proposing to map information disclosure process for issuers at DSE, and is offering experience in designing an electronic information disclosure system. SZSE understands that both Bangladeshi and Chinese capital markets are dominated by retail investors.
A robust investor relations management platform offering consolidated corporate information, simple analytical tools, online complaint and interactive Q&A is necessary to enhance transparency and corporate governance.
HR development and technological assistance
Cross-training is one of the best means to improve mutual understanding. SZSE is offering training programs on a full range of disciplines. SZSE is offering to design training programs to improve the technical capacity of DSE employees, in particular in technology.
The consortium has state-of-the-art technology systems and industry-leading technical personnel. The consortium enjoys access to the world's cutting edge stock exchange-based technology systems, and is looking forward to sharing these capabilities with DSE to help transform its technology infrastructure.
According to a special committee formed by the Bangladesh Securities and Exchange Commission, the offer of strategic partnership and the share purchasing agreement should both be approved by general shareholders before submission [to the commission] for final approval.
Therefore, the DSE Board will hold an extraordinary general meeting (EGM) on April 30 to get shareholders’ consent for the board’s approval of the offer from the Chinese consortium to become the bourse’s strategic partner.
DSE will also seek its shareholders' approval for selling its 25% shares to the consortium at Tk22 each.