22 stocks likely to be downgraded to Z on Sunday
The Dhaka Stock Exchange (DSE) has identified 22 companies for downgrading to the "Z" category on Sunday, in accordance with an order issued by the market regulator on Thursday.
DSE officials say they have already received verbal consent from the Bangladesh Securities and Exchange Commission (BSEC) but expect formal approval on Sunday.
As per the new order, companies that have failed to hold the annual general meeting in time, failed to declare dividends for two consecutive years, have not been in operation for more than six months, or have accumulated losses or negative retained earnings exceeding the paid-up capital are eligible to be classified as Z-category companies – known as junk stocks.
Currently, there are 27 companies in the Z category. Investors cannot take margin loans to buy shares of these companies, and their trading requires three days to be settled, instead of the usual two days for regular stocks.
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According to DSE sources, a total of 48 companies have been identified as eligible for downgrading their category, in line with a recent order issued by the BSEC.
A senior officer at the country's premier bourse told The Business Standard that the list was submitted to the commission for downgrading on Thursday, and verbal consent was given for only 22.
He also mentioned that the order would take immediate effect, but stock exchanges are instructed to seek permission before implementing it again. Due to this uncertainty, the category will not be changed until an official letter is received from the commission.
Therefore, the category change of 22 companies may occur on Sunday, but there could be a potential delay of a few days depending on the regulatory process, he added.
Out of the 22 companies, 15 firms have negative retained earnings exceeding their paid-up capital, and some firms have experienced a production halt for over six months.
Besides, out of 48 companies, 27 firms failed to pay dividends for two consecutive years, and 19 firms could not conduct their annual general meeting in time.
However, under the new order, the directive regarding dividend payout will not come into effect until further declaration of the dividend.
A senior officer of the BSEC said companies whose production has been stopped for more than six months and whose negative retained earnings exceed paid-up capital will immediately move to the Z category. And this work will be done by the stock exchanges. The commission will only check whether there is any mistake in the change of category.
In 2020, due to the economic crisis caused by the Covid-19, the commission revised the criteria for downgrading to the Z category. Initially, the rule stated that if a company fails to pay dividends for two consecutive years, instead of one year, it would be moved to the Z category, but this 2020 order was canceled in September 2023, with effect from 28 February this year.
However, the commission reversed its previous decision by issuing a new order last Thursday. As a result, after 2020, no company has moved to the Z category despite not paying dividends and shutting down production.
A top official at a brokerage firm said, "Inconsistent decisions made without any discussions with stakeholders will put investors in a difficult position when making investment decisions. Such indecisions can turn the market speculative and create opportunities for manipulators to influence junk shares."
