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Chinese consortium in DSE: Performance not as per expectation after a year

  • Published at 09:42 pm May 13th, 2019
dhaka stock market DSE
File photo of Dhaka Stock Exchange Limited Dhaka Tribune

A shareholder of DSE said the consortium was yet to make any contribution to the market development

The strategic partnership agreement between the Dhaka Stock Exchange (DSE) and the Chinese consortium of Shenzhen Stock Exchange (SZSE) and the Shanghai Stock Exchange (SSE) was granted a year ago buts its performance has not been satisfactory as yet.  

The DSE on May 14, 2018 struck a deal with the consortium allowing it to buy 25% of its ordinary shares for Tk947 crore. But its performance has left the stakeholders disappointed.  

A shareholder of DSE said the consortium was yet to make any contribution to the market development.

Meanwhile, a number of DSE directors, while speaking to Dhaka Tribune, said one year was not enough for the market to get profits from this investment; it would take some more time for that.

They also said the consortium had some development plans but many of them were hard to implement in Bangladesh context and would take long to execute.

On May 14, 2018, the DSE signed a memorandum of understanding (MoU) with the Chinese consortium to sell 25% of DSE’s shares to the consortium to make it a strategic partner of the bourse. 

Before that on May 3, 2018, the Bangladesh Securities and Exchange Commission (BSEC) approved DSE’s proposal for selling its 25% stake to the Chinese consortium.

According to the Share Purchase Agreement (SPA), the consortium will hold 25% - equivalent to 450,944,125 ordinary shares - of DSE at Tk21 each in order to partner with the bourse.

The consortium has also offered about $37 million for infrastructure and technological development, on top of the Tk947 crore for the DSE shares.

According to the Stock Exchange Demutualization Act 2013, 40% of DSE shares are credited to DSE member accounts, while the remaining 60% has been kept in a blocked account. 

After selling 25% of its shares from the blocked account to the Chinese strategic investor, the bourse shall float the remaining 35% through an initial public offering (IPO).

After the deal was made, SZSE Deputy Director General Xie Wenhai was appointed as a director of the DSE Board.

Among the headline proposals of the $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 proposed 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.

DSE hopes for huge investment from the consortium

Stakeholders and DSE board members had earlier hoped that the consortium would bring huge investments.

“We haven’t found any specific move from the consortium to bring investments to Bangladesh, other than raising the market depth,” said a shareholder of DSE.

The share holders alleged that the director appointed by the consortium in DSE board joined the board meeting through video conferencing and the board hardly got any input from him.

DSE Director Minhaz Mannan Emon, speaking to Dhaka Tribune, said: “It will take time for the stock market to profit from the Chinese investment. The consortium mostly emphasizes on IT infrastructure development, which is time consuming.

“The board is optimistic that the consortium will play a vital role in developing the capital market of the country.” 

After the stock market crashed in 2010; restoring investors’ confidence and ensuring monitoring to stop manipulation and bringing transparency were key demands from the stakeholders.

Experts and stakeholders believe that DSE expects a well-regulated and technically sound stock market for the betterment of the investors as well as the shareholders with the help of the consortium.

Mahbub H Mazumdar, CEO of AFC Capital, a merchant bank, told Dhaka Tribune that the consortium and DSE are in and support of the Belt and Road Initiative (BRI).

Mohammad Alauddin, a stock trader, said: “As a small investor, I would like to forget the horror of 2010. What happened back then was due to manipulation and careless monitoring. We only expect the consortium to develop a mechanism to ensure fair play in trading.”