Stock market lifeline: Govt seeks opinions of BB, BSEC

FT ONLINE

The Ministry of Finance (MoF) has sought opinions from the central bank and the securities regulator on a loan amount of Tk 100 billion (10,000 crore) sought by stockbrokers to shore up the moribund stock market.

The chairman of the Bangladesh Securities and Exchange Commission (BSEC) confirmed this to media after the receipt of the letter sent by the MoF.

"We have received the letter today (Wednesday). A BSEC team will examine the loan proposal," BSEC Chairman Prof M Khairul Hossain said.

He said the BSEC would give its opinion about the stock market lifeline after discussion in a meeting of the commission.

"The BB (Bangladesh Bank) will fix the structure and conditions of the loan sought by the stockbrokers. We will just give our opinions as elicited by the MoF," the BSEC chairman added.

Earlier on October 24 around 20 stockbrokers submitted the proposal to the MoF seeking Tk 100 billion in loan from the government against the backdrop of the continuing erosion in stock prices.

The broad index of the Dhaka Stock Exchange (DSE) dipped to 42 months' low on Wednesday as panic-driven investors continued their selling spree.

The DSEX lost a total of 300 points in the past month and 1,533 points since January 24 this year, when the index hit its peak at 5,950.

The market capitalization also sheds Tk 178 billion in the past one month and Tk 827 billion in the past eleven months.

The stockbrokers sought the fund at a flat interest rate of 3.0 percent. They proposed disbursement of the loan holding their portfolios as collateral against it.

Asked about the exact amount of money to be disbursed, BSEC executive Mohammad Saifur Rahman said only the government can tell it.

On December 5, stockbrokers submitted a work-plan on investment of the fund sought from the government.

In their work-plan, the stockbrokers said they would invest the fund in shares of listed companies, which have the record of disbursing at least 10 percent cash dividend.

The listed companies having a growth record for at least three years, out of the last five years, will be chosen for the investment of the fund, according to the work plan.

"The listed companies should also have at least a 10 percent return on equity (ROE)."

ROE is the measure of a company's financial performance calculated by dividing the net income by shareholders' equity, expressed in percentage. The percentage represents the total return on equity capital and shows the firm's ability to turn assets into profit.

The stockbrokers also said the fund would be invested in shares of listed companies having a market capitalization of at least Tk 5.0 billion each.

"The first year will be the moratorium period, while only the interest will be paid in the second year. The government's loan will be repaid in the last four years," stated the stockbrokers' work-plan.

After the 2010-11 stock market debacle, the government provided Tk 9.0 billion under the capital market refinancing scheme to reduce the woes of small investors, affected in the market crash.

The fund was handed over to the Investment Corporation of Bangladesh (ICB) in three equal installments.