Changes in private placement rules likely to free stuck funds

Mashiur rules out BB intervention in capital market

FE Report

The securities regulator might go for some changes in the rules to help release of large funds now stuck in private placements and ensure return of big players in the market.
Mr M Khairul Hossain, newly-appointed chairman of the Securities and Exchange Commission (SEC), indicated such a possibility while speaking at a seminar organised by the Dhaka Chamber of Commerce and Industry (DCCI) in Dhaka Saturday.

Khairul Hossain said the best way to solve the liquidity crisis will be to woo big traders back into the market and free up funds stuck in private placements."The market is facing a severe liquidity crisis. The SEC will give importance to solve the problem by releasing the money of the general investors which are now stuck in placements," Mr. Hossain said."We have to bring back the big traders in the market. They made hefty profit from the bourses last year, but have stopped fresh investment for the last few months," the SEC chairman added."To encourage the institutional investors we need to formulate a specific guideline for placement of shares" he said. Prime minister's economic advisor Mashiur Rahman said brokerages are also partly to blame for the recent stock debacle as they spread their services to countryside, but failed to inform new traders about risk in share investment.
"Brokerage houses opened their branches in the district towns, but they did not properly inform the investors about the risks involved in share trading," Dr. Rahman told a seminar on capital market reforms in the city. The advisor said the market was going through a "crisis period" largely due to a liquidity problem, but he ruled out any immediate intervention by the central bank to improve the situation.

"Central banks in the developed countries like in the US offer liquidity support in case the stock market falls sharply," he told the seminar. But in case of Bangladesh, it won't be wise for the central bank to give such support without assessing other effects such as inflation and the fallout on the health of the banking sector, he added. He, however, expressed the hope that the crisis would go away once the reforms initiated by the government start making headway. "Once transparency and accountability are ensured, there will be no abnormal situation in the capital market" he said.

He said a new generation of entrepreneurs has emerged in the country, but they should not be chained with unnecessary rules and regulations. "The country's development won't be possible if they are shackled."In his first public speech since he was appointed as the top securities regulator, Mr. Hossain said his main challenge will be to restore the tarnished image of the SEC.

The SEC chief said changes in the rules and regulations, formulating new guidelines, proper enforcement of laws, and enhanced monitoring and surveillance can make the market healthy.
"The SEC will coordinate its work with related organizations like the Bangladesh Bank and the NBR in regulating the capital market successfully. We shall also make the organisation transparent," he said.
Dhaka Stock Exchange (DSE) President Shakil Rizvi, Chittagong Stock Exchange (CSE) president Fakhor Uddin Ahmed and DCCI president Asif Ibrahim also spoke on the occasion.
The SEC chairman said the capital market could catalyze industrialisation and building much-needed infrastructure if the right incentives are given to the entrepreneurs to raise money through stock selling.

DSE president Shakil Rizvi urged the government not to treat the investors as "thieves" and bourses as "gambling havens". "There should be no such measure which might cause loss of confidence among the investors."He said the entire investment climate cannot be destroyed for a particular person or a group of persons. "If this happens, we will think there is conspiracy going on to undermine the market."He renewed calls to formulate a specific guideline for IPO placement and demanded additional incentives for the listed firms. During the seminar, Dhaka University finance professor Salahuddin Ahmed Khan and Managing director of Green Delta Securities Waqar Ahmed Chowdhury presented two key note papers on demand and supply side constraints of the stock market.
CSE president Fakhor Uddin Ali Ahmed said some lapses in the regulatory regime might have contributed to the share market crash. "These lapses in the laws and lack of coordination must be removed."

DCCI president Asif Ibrahim said investors' confidence can be shaken easily, but it is hard to restore. Regulators, issuers, investors and public company auditors all have roles to bring back market sentiment.

"We can't think of economic development without proper growth of the capital market. This is the lifeblood of business and industry as it helps raise capital," he said."If investors' confidence can't be revived, it'll have serious impact on industrial growth and overall economic development of the country," he said. Panellists speaking at the two working sessions stressed sweeping regulatory reforms and scaled-up liquidity flow in the current volatile market to restore market health.

"Strengthening regulatory regime and making the SEC more transparent and accountable are crucial to boost investors' confidence in this volatile market," said Dr. Hossain Zillur Rahman, ex-adviser to the caretaker government. Speaking on the demand side constraints at the bourses, DSE senior vice-president Ahsanul Islam Titu stressed investment of multi-billion taka Life Fund, accumulated by the insurers, in the market in an effort to boost liquidity supply. Finance Professor and capital market expert Mahmood Osman Imam said tax on dividend should be reduced to five per cent from existing 10 per cent to encourage fresh investment in stocks. Speaking at the second session on 'Supply side Constraints' Arif Khan, managing director of Zenith Investment Limited, said the DSE market capitalisation increased several times in the past two years, but supply of good shares remained inadequate.

"More private and multinational firms should be encouraged to get themselves listed with a view to increasing supply of quality shares in the market. Only this way we can minimize the demand-supply gap," said Mr. Khan."The supply side can also be improved by offloading shares of profitable state-owned enterprises and more stakes of the already-listed large companies," Khan added.

He said corporate governance is very poor in our country and government should seriously look into this matter. Waqar Ahmad Choudhury said the government needs to take steps to shore up liquidity in the secondary market by promoting bond market."We have already told the government to start raising funds through bonds and treasuries for big infrastructural projects," said Mr. Choudhury.

He also urged the government to relax the IPO (Initial Public Offering) policies and fix the minimum paid-up capital of the would-be listed companies to Tk 100 million from the existing Tk 300 million.

Niaz Rahim, managing director of local conglomerate Rahimafrooz, said due to lack of regulatory clarity, many private companies are not interested to raise capital from the stock market.

Rahim said his company is planning to go public in the near future but he noted that at this moment regulatory reform is a must to revitalize investors' confidence.

Source: Financial Express (29 May 2011).