Bourses to upgrade Z stocks on 80% dividend disbursed

Infograph: TBS

Regulator allows DSE to change category 

• If 80% dividend disbursed, DSE will change category 
• Recently, DSE downgraded over a dozen firms to Z
  • Cause: failure to disburse 80% declared dividend
• Some of firms already disbursed dividend
  • They submitted dividend disburse report to DSE

Recent measures

• DSE wrote to BSEC seeking guidance to change category
• It verified compliance report submitted by companies 
• Upon letter of the DSE, the BSEC allowed category changing 

Z stocks at a glance

• Total: 86
• Cause for downgrading to Z:
  • Fails to pay any dividends for two consecutive years
  • Fails to hold AGM 
  • Retained earnings surpassed paid-up capital
  • Operation closed over six months

The Bangladesh Securities and Exchange Commission (BSEC) has authorised both stock exchanges to upgrade Z category stocks to their relevant categories if 80% of the declared dividend is disbursed.

The commission made the decision during an emergency meeting held on Sunday at its headquarters in Agargaon.

According to the Dhaka Stock Exchange (DSE), around ten companies have submitted compliance reports after disbursing dividends, following their downgrading to the Z category.

A DSE official said they will change the categories of these companies in accordance with the commission's direction.

As per the DSE's website, four companies — Beach Hatchery, Advent Pharmaceuticals, Libra Infusion, Shepherd Industries — have published their disbursed dividends.

However, despite disbursing the dividends, the DSE has not yet moved them to their respective categories.

DSE officials added that four companies have submitted compliance reports to the bourse after disbursing dividends. As the commission has allowed category changes if 80% of the dividends are disbursed, the changes will be made in the next working days.

On 25 September, the bourse downgraded 13 firms in a single day to the Z category, bringing the total number of junk stocks at the DSE to 86. They are Associate Oxygen, Indo-Bangla Pharma, Beach Hatchery, Advent Pharma, Khulna Power, Pacific Denims, Fortune Shoes, Energypac Power, VFS Threads, Shephard Industries, SK Trims, Lub-reff (Bangladesh), and Libra Infusion.

A day later after downgrading, the DSE returned the Energypac to its previous category as it paid its dividend.

Owing to the failure to disburse the declared dividend to their shareholders within the stipulated time mandated in listing rules, the stock exchanges downgraded the companies to the Z category, which previously listed on A, and B categories.

The DSE downgraded the stocks in line with a directive from the commission issued on 20 May, which set specific criteria for listed companies to be placed in the Z category.  

Due to the downgrading, the stocks experienced significant price erosion as they faced excessive selling pressure.  

The sudden decision by the stock exchange to downgrade these stocks unsettled investors and sparked frustration, as the shares lost considerable value.

Following this, the regulator summoned the top officials of these companies and held a meeting, during which the commission urged them to promptly disburse the declared dividends.  

As a result, some non-compliant firms that had failed to disburse dividends managed to hastily disburse at least 80% of their declared dividends to shareholders.

But the stock exchanges were not allowed to change categories despite the disbursement of dividend.

Now, after the commission's decision, the bourses will be able to change categories after disbursing the dividends, a top official of the DSE told the Business Standard. 

Meanwhile, at the beginning of September, the DSE, premier bourse in the country, sought guidance from the market regulator to readjust the category of the Z stocks, as some companies have disbursed approved dividends.

Seeking guidance from the BSEC, the DSE wrote a letter asking what course of action should be taken for companies that have disbursed at least 80% of the declared or approved dividends and submitted a compliance report.

The letter, a copy of which is obtained by TBS, said the DSE downgraded 18 companies to the Z category for failing to disburse dividends within the stipulated time.

In May 2024, the commission issued a directive regarding downgrading firms to the Z category.

In the directive, the provision 1(e) mandated that any company that failed to disburse at least 80% of declared or approved dividend within the stipulated timeframe will be transferred to the Z category. 

However, the DSE observed that after being categorised as Z category, some of the companies have submitted compliance reports and disbursed at least 80% of the approved dividend, the DSE stated in the letter. 

In the settlement of transactions regulation mandated that placement of a company in G, N or Z category shall be adjusted to A or B-category on the day of following the date of submission of compliance report with the DSE.