Beximco raises share
fears By Syed Tashfin Chowdhury
DHAKA - A move by Bangladesh conglomerate
Beximco to acquire four of its non-listed
subsidiaries and pay for the deals with the issue
of new shares is raising concern that the
country's stock market could be in for a new bout
of stock manipulation, with ill-informed retail
investors being suckered by big business.
The increase in Beximco's financial base
will encourage buying among small investors and
boost its stock value, said analysts.
"Rather than approving the issuance of
over eight million shares for Beximco, the SEC
[Securities and Exchanges Commission] could have
asked Beximco to acquire the four companies with
money from its reserves," one stock market expert
told Asia Times Online.
Beximco, or
Bangladesh Export Import Co, is doing the deals
after the failure this month of GMG Airlines, into
which it had
ploughed at least 700
million takas (US$8.5 million) before the
carrier's operations were suspended. Beximco had
bought a 50% stake for 300 million takas and
injected 400 million takas in loans to ease the
airline's financial pressures in 2009.
The
SEC on March 27 announced its approval to
Beximco's acquisition of all shares of
International Knitwear and Apparels Ltd, Beximco
Fashions Ltd, Crescent Fashion and Design Ltd and
Freshtex Bangladesh (Pvt) Ltd and the issue of
$986,000 worth of new shares, which are to be
locked-in (ie cannot be sold) for three years.
Acquisitions followed by issuance of
shares, which any company in Bangladesh can do to
a maximum of 10 million shares if approved by the
SEC, increase the scope for market manipulation, a
finance lecturer at a private university in Dhaka
told Asia Times Online.
"It is easier to
dupe the impulsive 3.3 million investors in the
stock market who will buy shares of companies
whose prices are on the rise or are likely to
increase following revaluation of assets,
increased paid-up capital, selling off liabilities
and so forth," he said.
While commending
SEC's move to lock-in Beximco's newly issued
shares for three years, he added, "Under such
circumstances, a company like Beximco can still
make significant profits by letting go of fewer
stocks at nominal price. With restricted supply
due to the lock-in, mounting demand will increase
the price of shares. The company can then sell
more shares at the increased new price and so on,
leading to over-valuation."
In the event,
the share performance may disappoint buyers of the
stock after the March 27 SEC go-ahead for the
share issue. The shares have since slipped around
8.5% as of April 9, after surging 96% in the
period from February 6 to March 28.
Beximco shares have been heavily bought
previously when the company fully acquired units
with related share deals. In July 2011, amid a
year-long volatile retreat in share values,
Beximco Textiles (Bextex) merged with Beximco Ltd
at an exchange ratio of one Beximco share for five
Bextex shares. In the period from June 28 to July
26, the parent company's shares gained around 22%
before tipping into another steep slide.
Beximco shares, like the rest of the Dhaka
market, are very volatile. Between May 2008 and
August 2010, Beximco surged from 9.97 takas to
above 224 takas, before slumping with the rest of
the market in 2011 to a low of around 69 takas on
February 1 this year.
From May 2009 it
gained more than 200% by June 2010, while the
benchmark index continued to rise until December 1
that year, when the value of the stock and the
index started a three-month precipitous plunge
that with occasional breaks continued until this
past February.
Stock market manipulation
was identified by an investigation committee as
one of the key ingredients of the 2011 stock
market crash. The inquiry, headed by Khandker
Ibrahim Khaled, former deputy governor of
Bangladesh Bank and the present chairman of
Bangladesh Krishi Bank, submitted a report to the
government on April 7, 2011.
The entire
report has not been published by the government,
but leaks reported by local media said reasons it
identified for the market fall included
short-selling, insider trading, asset revaluation
and other forms of irregularities, including
market manipulation.
Some media claimed
that around 200 billion takas were lost during the
2011 crash, out of which around 150 million takas
were siphoned out of Bangladesh. The Khaled
inquiry mentioned Beximco among the companies it
thought should be investigated.
Beximco
has waived off "slanderous remarks" and
allegations by the media.
Memories were
renewed of claims Beximco took part in a syndicate
that manipulated the stock market before it
collapsed in 1996. Reporting on the collapse, The
Economist on April 10, 1997, wrote, "From
September to November, the all-shares index soared
from around 1,000 to nearly 3,700. Then, it all
went bust."
Cases were subsequently filed
by the SEC against various parties including Runa
Alam, head of the Bangladesh offices of Hong
Kong-based investment bank Peregrine Investment
Holdings; and Sohail and Salman Rahman, the two
brothers at the helm of Beximco. The cases are
still stalled due to stay orders against all of
them.
"Even, the lawyer who took the
initiative to revive the cases on the part of the
SEC was removed," Khaled was quoted as saying in a
Daily Star report on January 25, 2011.
Listed on the stock market since 1989,
Beximco, with varying business units, reportedly
made a net profit of 6.85 billion takas in 2010.
Results for 2011 have not been announced.
Syed Tashfin Chowdhury is the
Editor of Xtra, the weekend magazine of New Age,
in Bangladesh.
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