Stock investors to act blindly!

Like all other offices in Bangladesh, the stock market is also reopening today after the two-month-long Covid-19 shutdown.

Investors are excited to participate in trading. However, it seems they will have to act blindly in many cases as they have yet to know some key price sensitive information about the majority of the listed companies.

This has happened thanks to the pre-shutdown regulatory relaxation for the listed companies in terms of conducting mandatory board meetings and general meetings along with publishing price sensitive information on time.

Despite the relaxation, a small number of companies have conducted board meetings online, adopted financial statements and also held general meetings of shareholders. Some companies have published important price sensitive information for shareholders like they did in normal times. 

It seems that considerate investors do not mind the fact that they are getting financial updates late as most of the offices were closed during the general holidays and companies faced difficulties preparing statements.

However, investors are perplexed about deciding on investments without knowing if their companies had been operating, or if there had been any layoffs during the shutdown – and of course the financial implication of those facts.

Sohel, a 37-year-old stock investor in the capital holds shares of more than a dozen listed companies. Two of these companies are from the ceramics sector.

Of those, Standard Ceramic has published a series of disclosures stating that they are extending their factory layoffs, hence there was no production and a curtailed payroll throughout the tough time.

However, Sohel has to act blindly today for RAK Ceramic (Bangladesh) shares, as the company did not disclose any information like this.

The Bangladeshi subsidiary of UAE-based RAK group has published its financial statement for the January-March quarter to keep up the pace with the mother company abroad.

However, like many other listed companies, it did not think it was necessary to communicate the updates on factory operations with minority shareholders.

The Business Standard has learned that the industry leader has gone through a layoffs phase that began on April 12 and was initially declared to end on May 26. The company has communicated the information through a letter to the concerned government offices like the Department of Labour – but not to the stock exchanges and shareholders.

When contacted, Chartered Secretary Muhammad Shahidul Islam, the company secretary of RAK Ceramics (Bangladesh) Ltd, told The Business Standard that the financial statement preparation and adoption in board was done mainly because of demand from the mother company and the statements were published properly.

Asked about the letter on layoffs, seen by The Business Standard, he said, "We have communicated that with the concerned government offices only."

He accepted that the investor relations team of the company did not communicate the information about layoffs with stock exchanges and the shareholders as the Bangladesh Securities and Exchange Commission (BSEC) had relaxed regulations for the listed companies during the unusual time of pandemic.

Informed about the layoffs, RAK Bangladesh shareholder Sohel expressed his frustration saying, "I do not know how many of my companies acted like this in the last two months. It was not a tough job to post such information on websites of the company, stock exchanges and news portal advertisement sections."

"The BSEC waiver makes sense if a company defers its financial statement preparation or meetings. But, it is unfair to deprive minority owners of the vital updates about their business," said the stock investor.

"How can I calculate the rational price of my shares today without the companies' operational updates?" Sohel asked.

Earlier in April, The Business Standard had reported an interim layoff at LafargeHolicm Bangladesh head office – not based on the company's public disclosures, but based on hunted documents.

A culture of disclosing less

CFA Charter holder Md Moniruzzaman, the managing director of merchant bank IDLC Investments Ltd, also the vice president of Bangladesh Merchant Bankers Association, is also frustrated with the culture of less disclosure practiced by the majority of listed companies in Bangladesh.

"Often, our analysts have to depend on foreign sources for detailed information to understand things about locally listed companies," he said, citing some companies' better and more elaborated disclosures and explanation from multinational headquarters and foreign stock exchanges in cases of dual listings.

Here, the companies' mandatory explanation on significant deviation in quarterly results is too inadequate — a one liner often. Reliable forecasts by management are a far cry.

"In cases of business deals, companies are confused about when to disclose things or if to disclose anything at all. I would say, the disclosures should be from day one of any development — like entering a memorandum of understanding initially, and then proceeding into a contract or not ultimately. Each phase should be better disclosed," he said. 

"Insiders know it all and many of them try to beat general investors on the market with their unfair edge," added Moniruzzaman.

A holiday indeed

Two stock exchanges had received over a hundred of voluntary price sensitive information from issuers since their last trading day on March 25, according to sources.

However, those are yet to be published as the exchanges are habituated with uploading price sensitive information on their trade server and website simultaneously. Over the weeks of shutdown, the web uploading was not done as the trade servers were not opened and the concerned officers were not working.

"We are processing the notices and will upload those on Sunday morning," said Kazi Sanaul Hoq, the managing director of the Dhaka Stock Exchange. 

However, investor Sohel, like many others, said exchanges could upload the notices – whatever they had received from companies – at least on their websites way before resuming trade.

"Exchange officials enjoyed their holidays fully. The simple task of uploading notices was also kept aside for trade reopening," he expressed his dissatisfaction.

Hoq said, "I have joined the exchange this year and we are working hard to make the exchange meaningfully automated within six months, literally. The problems we faced during the unprecedented situation will not remain then. It was a wakeup call," said Hoq.

Meanwhile, Sohel is concerned about how to analyse all the price sensitive information during trade hours. He also despises the way he is kept uninformed about operational status.

"The regulator instead could ask companies for a special statement containing their operational updates and business impacts of the disruptive situation," said the individual investor who is a bit relieved from fighting the market downturn because of the floor pricing mechanism ordered by the regulator in the wake of Covid-19 pandemic.

On the other hand, the large investors are annoyed with the floor pricing as that is not allowing prices to go below a certain level and thus reducing liquidity drastically.

To protect thousands of small investors, the securities regulator has still decided to wait before withdrawing the floor price method.

The BSEC has got its new chairman and commissioners recently, who are determined to improve things significantly.

Professor Shibli Rubayat-Ul-Islam, the BSEC chairman, told The Business Standard that the waiver was intended to give companies some breathing space during the emergency situation and will not remain for long.

"We just have taken charge and are working to address the problems. We will ensure the environment of maximum disclosure. That is the investors' right," he said.