Dead firms, rising shares

In a rare step in September last year, the Dhaka bourse published a list of 30 companies that had long been out of production. The move was meant to inject transparency into the market, check rumour-driven trading and warn investors chasing whispers rather than market fundamentals.

Instead, it had the opposite effect.

After the disclosure, share prices of 29 of those zombie firms, whose factories are padlocked, machines are gathering dust, and workers have long since left, surged. Some doubled. Others tripled.

Market analysts say allowing companies with no operational heartbeat to trade freely undermines confidence. For the sake of ordinary investors and the long-term health of the market, the regulator should move quickly to clean house.

The Dhaka Stock Exchange (DSE) says it is now preparing to delist companies with no realistic prospect of revival in phases.

But the obvious question is, why did the shares race ahead even though production has been halted for years?

Saiful Islam, president of the DSE Brokers Association of Bangladesh (DBA), said the answer lies in speculation. “Globally, there are always some investors who prefer to invest in penny stocks,” he said, referring to low-priced and highly speculative shares of small companies.

“There is a class of traders who are heavy risk takers and essentially enjoy gambling,” said Islam.

“They believe that if prices start to rise for any reason, the relatively low number of shares in these companies makes it easier to play in their favour,” he added.

DISCLOSURE TRIGGERS SURGE

After the disclosure by the DSE, shares of Familytex BD, Appollo Ispat and Tung Hai Knitting have more than tripled in the past three months, even though operations have been shut for years.

Other dormant firms have also seen sharp gains.

Hamid Fabrics, New Line Clothing, Nurani Dyeing and Shurwid Industries have more than doubled. Prime Textile rose 83 percent, while Meghna Pet Industries and Northern Jute climbed 69 percent each.

Meghna Pet Industries has been out of operation for 24 years. Its rally has left many analysts baffled.

“Why did this company’s stock rise to that extent?” asked Al Amin, an accounting professor at Dhaka University and a market analyst.

“Why did the company remain in the stock market for two decades despite having no operation, no dividend, nothing?” he questioned.

“These are surging absolutely due to manipulation and rumours by a vested interest group,” he added.

“By allowing trading of closed companies, the DSE and the BSEC [Bangladesh Securities and Exchange Commission] are basically allowing investors to burn their hands,” he further said.

Among the 30 companies, only GBB Power reported positive news, announcing that it had signed a power purchase contract with the Bangladesh Power Development Board (BPDB) for the installation of an 18 MW solar power plant.

Of the other dormant firms, Zaheen Spinning Mills rose 63 percent, Emerald Oil gained 55 percent and Regent Textile advanced 52 percent.

Prof Al Amin said the DSE cannot avoid its responsibility simply by publishing the status of the companies, especially when the securities regulator operates surveillance software.

In his view, both DSE and the Bangladesh Securities and Exchange Commission (BSEC) should dig deeper and suspend trading in such shares.

When asked whether suspension would hurt small investors, he said those who bought the shares should have had supporting information.

DBA President Islam also advocated for stronger action. The DSE’s responsibility, he said, does not end with labelling companies as non-operational.

He said investor protection is a core duty of the market regulator. If firms have remained dormant for years, the DSE could have suspended trading, summoned management, explored mergers or restructuring and engaged merchant banks to assess options.

AXE FINALLY LOOMS OVER THEM

Abul Kalam, spokesperson of the BSEC, said the regulator has placed the companies under surveillance. If it finds manipulation, insider dealing or regulatory breaches, it will act.

On whether the companies will continue trading despite years of closure, he said listing and delisting are fully in the hands of the stock exchange.

“Stock exchange can delist the companies complying with listing regulations; it is their task,” he added.

Mominul Islam, chairman of the DSE, said the exchange has asked the non-operational companies about plans to resume operations. Some have replied, others have not.

“A few cited political disruptions over the past decade as the reason for closure and said they are trying to reopen factories. The DSE will allow them time,” he told The Daily Star.

For the rest, the exchange will assess whether operations can realistically resume. If not, it will review assets and liabilities before making a decision. Some companies will be delisted gradually if there is no prospect of revival, he said.