BSEC finds ‘flaws’ in Chinese consortium bid, may reject it

Mostafizur Rahman | Published: 00:05, Feb 28,2018 | Updated: 23:09, Feb 27,2018


A file photo shows Dhaka Stock Exchange at Motijheel in Dhaka. The Bangladesh Securities and Exchange Commission is likely to reject the DES proposal to make a Chinese consortium as its strategic partner by selling 25 per cent stake as the BSEC found the consortium’s proposal ‘violates’ relevant rules and regulations, said BSEC officials. — New Age photo

The Bangladesh Securities and Exchange Commission is likely to reject the Dhaka Stock Exchange’s proposal to make a Chinese consortium as its strategic partner by selling 25 per cent stake as the BSEC found the consortium’s proposal ‘violates’ relevant rules and regulations, said BSEC officials.
The stock market regulator, which has been against the selection of the Chinese consortium of Shenzen Stock Exchange and Shanghai Stock Exchange, from the very beginning, on Tuesday sent a number of queries to the DSE about the consortium’s proposal and asked it to submit reply along with tender documents by March 4.
A BSEC committee, after evaluating the consortium’s proposal, in a letter to the DSE highlighted that a number of clauses of the proposal was in direct deviations of the country’s relevant laws.
According to the BSEC evaluation, the Chinese consortium’s proposal to execute the agreement under the UK law and settlement of any dispute under international arbitration law was in violation with the relevant laws in Bangladesh.
Besides, the consortium’s proposal to include a number of other issues including seeking of approval of the consortium to take any other strategic investor by the DSE also violates Bangladesh law, said the BSEC letter.
‘The Chinese consortium’s proposal contains a number of serious issues. We think the DSE will not be able to clarify the clauses and ultimately the Chinese consortium’s proposal will be rejected,’ said an official of the BSEC.
He said if the Chinese bid was rejected, the DSE would have to go for fresh bidding.
DSE managing director Majedur Rahman confirmed that the DSE had received a letter from the BSEC in which the regulator asked the bourse to explain some queries about share purchasing agreement of the Chinese consortium by March 4.
Asked about the BSEC queries, Majedur told New Age that they would clarify the BSEC the bourse’s position in favour of the Chinese consortium soon.
He said that the agreement clauses with the Chinese consortium could be negotiated if the BSEC approves its selection.
‘The committee will submit its report to the commission once it gets answers from the DSE,’ BSEC officials said.
Before the BSEC sent the evaluation letter to the DSE, the regulator and the bourse were in bitter tussle over the selection of the strategic partner as the BSEC favoured the second-top bidder, a group-led by India’s National Stock Exchange, instead of the top bidder, the Chinese consortium.
As per directive from government high ups, BSEC top brass pushed the DSE board to select the NSE-led group although it quoted a price
offer of Tk 15 a share of the DSE against Tk 22 by the Chinese consortium.
The tussle got international media attention as many of the new reports termed it a tussle between India and China to establish their dominance in Bangladesh.
Because of the tussle, investors became worried that kept the market bearish for a month.
The latest comments made by finance minister AMA Muhith on a letter of the Chinese embassy that he did not think the Chinese consortium was capable enough to be DSE’s strategic partner might have emboldened the BSEC against the Chinese consortium, said a number of DSE members.
The Chinese embassy letter was sent to Muhith and the BSEC seeking cooperation for the Chinese consortium’s offer. Muhith forwarded his letter to the BSEC with his comments.
Amid the tussle, there is a general feeling in the BSEC that the DSE board and management were ‘insulting’ the BSEC while the DSE feels that the regulator was trying to punish the bourse for not bowing down to its pressure to select the India’s NSE-led group, said a number of officials of both the organisations.
Besides, the NSE-led group, especially its Bangladesh partner, Frontier Bangladesh, was in hectic lobbying with the government high ups to scupper the entire bidding process as there is little chance for the NSE-led group that it would get the chance in the ongoing bidding round.
A number of BSEC officials told New Age that the flaws in Chinese consortium’s proposal were ‘vindication’ of the BSEC position against the consortium’s proposal.
The BSEC committee’s evaluation report also questioned the share price of Tk 22 quoted by the consortium.
‘It appears that the price [Tk 22 per share] offered by the consortium is not a fixed price, it is subjective and conditional price offer,’ said the BSEC report asking the DSE to explain whether the bourse estimated any adjusted value.
The BSEC also raised question whether the DSE had made any independent assessment on the value of the consortium’s technical support worth $37 million as claimed by the consortium.
The BSEC committee observed that despite holding 25 per cent shares Chinese consortium, if it became strategic partner, would hold ‘certain prerogative over the rest 75 per cent share holders’.
Besides, the committee asked the DSE to explain whether the consortium’s proposal to include certain clause in the agreement allowing it to form technical committee and appoint the co-chief technical officer was in violation of the DSE demutualisation scheme.
The committee found a number of other conditions including abolition of the obligatory contribution to the settlement guarantee fund for the consortium violated rules. 

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