DSE on the lookout for strategic partners

Dhaka Stock Exchange is desperately looking for strategic investors to sell shares to, as part of a regulatory requirement.

Although the premier bourse and the Chittagong Stock Exchange were demutualised three years back, they are yet to find any strategic investor in line with the demutualisation scheme. The deadline to get strategic partners ends in December.

Under demutualisation rules, 25 percent shares of the bourses have been kept in a block account for the strategic investors, while another 35 percent have been set aside for institutional and individual investors.

The rest 40 percent is owned by existing shareholders, who are commonly known as stockbrokers and stock dealers.

In recent times, the DSE sat with some 10 local and international institutions, offering them to be strategic partners.

As part of its latest effort, the DSE also published ads in newspapers last week, seeking proposals from potential strategic investors by November 15.

“We are trying to at least sign memorandums of understanding with the potential strategic investors before the regulatory deadline,” said Abdul Matin Patwary, chief financial officer of the DSE.

It is also continuously communicating with globally renowned institutions to encourage them to be strategic partners, he added.

In December last year, Bangladesh Securities and Exchange Commission asked the twin bourses to find strategic investors this year to sell shares to them.

As per the demutualisation scheme, which was approved by the BSEC in September 2013, a strategic investor should have the experience of managing exchanges or a business so that the tie-up could form an effective synergy.

Foreign stock exchanges, banks, financial institutions, technology firms and institutional equity investors can be counted as strategic investors and they can purchase shares in Dhaka and Chittagong stock exchanges.

Though there are no specific criteria on the financial condition of a strategic investor, the value proposition needs to be balanced against strategic considerations, according to the rules of the scheme.

“Shareholders have created value for the exchanges over a long time. Hence, it is important to receive the right financial considerations to offload shares to a strategic investor,” according to the scheme.

Cultural compatibility is also important for any partnership, especially in people-oriented businesses, as a lot of alliances have fallen apart due to discord between organisational cultures.

“It brings in efficiency which hinders the overall operations of the company. Hence, the stock exchange needs to ensure that an acceptable degree of cultural compatibility exists.”

Strategic investors will help ensure the introduction of new products, migration of best practices, technological advancement and a professional approach toward management.

If a strategic investor acquires any share of a demutualised stock exchange, it can only be resold to other strategic investors with approval from the BSEC.

The regulator, however, through written orders can exempt a strategic investor from provisions related to share buying, selling, acquisition and takeover.

Although the 13-member board of a bourse includes a director from the strategic investors' category, the post still remains vacant, as the bourses are yet to get any strategic investor.

After the stockmarket debacle in 2011, a probe panel recommended demutualisation of the bourses, a process which transforms the entities owned mainly by stockbrokers into public companies to be owned by shareholders.

The demutualisation law was passed in parliament in April 2013 to separate the bourses' management from ownership for bringing transparency to the market.