Committed to PEOPLE'S RIGHT TO KNOW
Vol. 5 Num 1082 Sun. June 17, 2007  
   
Point-Counterpoint


Forced listing no panacea


The government advocates it, the Securities and Exchange Commission (SEC) welcomes it, and the Dhaka Stock Exchange (DSE) encourages it. It is claimed to be the prescription for the financial sector that will eradicate symptoms of capital flight, restore investor confidence, and improve revenue collection.

One would assume, given the coverage given to this issue by the media and the importance cited by some government and autonomous bodies, that all the problems mentioned above can be solved by this simple action: Forced listing (in local stock exchanges) of certain private corporations and state owned enterprises. What were we doing all these years?

Investors are cheated by large international companies even in the world's most regulated capital market. Enron and MCI get most of the attention, but many "respectable" global companies that we know today have been guilty of the same crime one time or another, although the magnitude or manner might have been different. Equity finance by definition means equitable distribution of profit and loss amongst shareholders, but it rarely is the case when it comes to listed companies.

The management of most companies listed in Bangladesh stock exchanges are in the same league as the politicians of our country. They (management) would also be crowned champion in corruption had there been any list compiled like the "most corrupt nations on earth" in which Bangladesh claimed the top spot a few times, even defended the title in successive years.

I don't think we ever missed a position in the podium (Top 3), and probably hold some sort of record for number of appearances on the list. Along the same line, the contribution or effectiveness of the SEC, watchdog of the capital market, is at par with the Anti-Corruption Commission before the latest CTG, then watchdog of the government that gave us the "Prince," the "Media Mogul," and the "Boner Raja (King of the Forest)," to name a few. You get the picture!

I would like to share an example that I discovered during my early days in the capital market of Bangladesh (1995). I was baffled by the earnings level of a DSE listed company which was included in the unofficial "blue chip" category (similar to an "A" group listed company under present scenario). It was a pioneer in the industry with a household name and a huge export market.

As part of my research, I found out that the company engaged in "transfer pricing" by selling its production, earmarked for export, to a private company with little or no profit margin. The private company owned and managed by the same individuals as in the listed company, enjoyed the lion's share of the profit and 100% of its forex revenue as it handled the export part of the business. Such practices, and many "new and improved" ones, continue today in the absence of any representation in the board and lack of enforcement.

I really don't see any significant benefit, other than an increase in the market capitalisation of the stock exchange, in forcing an international company to list in our immature stock market, even if capital flight or tax evasion is suspected. There is little or no accountability of management to shareholders, and the SEC is ineffective in combating "white collar" crime. Our market infrastructure is inadequate, so is the supply of human capital.

Large international companies are run by smart executives. If the motive is there, forced listing could actually be a blessing in disguise for some since they get a "tax break" as an incentive, and find themselves with new opportunities, beyond the realm of their primary business, to make more money.

Asif Anwar is a financial markets professional.