The Bangladesh Securities and Exchange Commission (BSEC) on Monday decided to reset the floor price for bonus or rights share issuing companies at an adjusted price in the aftermath of their corporate declaration.
As per the decision, which was taken at the commission meeting presided over by BSEC Chairman Shibli Rubayet ul Islam, the declaration of stock dividend or rights shares increases the number of shares of a company while the value of the company remains stable.
Therefore, the corporate declaration dilutes the book value per share, and the stock price is reduced accordingly.
The BSEC made the move to revise the floor price after the British American Tobacco Company Bangladesh (BATBC) declared a 200 per cent stock dividend for its shareholders and its current floor price is Tk 907 a share.
If the company closes at Tk 1,500 a share on the record date, its diluted price could be Tk 500 per share, which is far below the reference floor price.
Now, as per the latest decision on Monday, the company’s floor price would be the adjusted price in consideration of the dilution effect after corporate declaration-centric record date.
Earlier on March 19 last year, the BSEC launched a new circuit breaker to halt the free fall that yielded positive outcome in the indexes.
The new emergency circuit breaker rule was set so that the prices of securities do not go below their average prices from the previous five sessions from March 19.
Due to the ceiling on price fall, the Dhaka Stock Exchange had not adjusted the price of many companies after their stock dividend or issued rights shares as the after-adjusted price would fall below the floor price, which could violate the BSEC floor price directive.
However, the Chittagong Stock Exchange adjusted the company’s corporate declaration to their floor price level.
The BSEC faced criticisms for the system as share prices of many companies were not trading due to artificially propping up the companies’ prices.
“This was needed -- I welcome this decision of the Commission,” said Abu Ahmed, an honorary professor at the Dhaka University’s economics department.
However, the floor price is not needed now.
“It was an emergency measure for the pandemic period,” he said, adding that there is no international rule for fixing prices for an extended period.
Also at Monday’s commission meeting, the BSEC also fined sponsor-directors including the managing director of Monno Ceramic Tk 5 crore and Monno Welfare Foundation Tk 10 crore for various securities rules violations.
The regulator decided to fine all five directors including MD of Monno Ceramic Tk 1 crore each for breaching section 17 (b) of securities ordinance, 1969 and notification issued on June 20, 2018.
The commission also decided to levy a fine on Monno Welfare Foundation of Tk 10 crore for a securities rules violation.
