Body formed to finalise share buy-back policy

FE Report (June 14, 2011)

A private-public committee headed by a functionary of the country's apex chamber has been tasked Tuesday to finalise the buy-back policy as part of an effort to stabilise the country's volatile stock market.

The move comes after questions were raised about a draft buy-back policy, with the central bank reportedly saying the proposed strategy could be manipulated by the listed firms and it might cause more harm than good to the investors.

Manzur Ahmed, an advisor of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) leads the body, which include senior government officials and experts from leading private institutes.

An inter-ministerial meeting at the Ministry of Commerce (MoC) took the decision, with commerce secretary Ghulam Hussain in the chair.

"The committee has been asked to submit their report by July 7. They have been given three major tasks in finalising the report," the secretary told the FE.

Buy-back means repurchase of outstanding shares by a listed company in order to reduce the number of shares on the stock market. The repurchase, sometimes, helps the investors get better price for shares.

In a mature market, companies usually buy back shares either to increase the value of shares still available, or to eliminate any threats by shareholders who may be looking for a controlling stake.

In March finance minister AMA Muhith pledged to introduce the buy-back policy in the country's bourses in an effort to make the capital market stable.

His promise came in the backdrop of one of the worst share market debacles in the country's history. Some experts had said allowing firms to buy back shares could protect the interest of the investors in a rapidly sliding market.

The main benchmark index at the Dhaka Stock Exchange shed more than 45 per cent between December and January, wiping out investment of hundreds of thousands of investors.

But drafting of the buy-back policy proved to be tough task than anticipated as a number of organizations have come up with different opinions as to how the companies should buy buck shares or whether it would benefit the investors.

According to a report, the central bank has said the buy-back policy could lead to further manipulation of the investors and could cause risk to the country's financial sector. It called for harmonisation of the policy with the Companies Act 1994.

Officials said the latest committee will examine whether any clause of the draft buy-back policy, prepared by SEC recently, goes against the spirit of Companies Act, 1994 under which the policy will be included or amended.

The private-public committee has inducted representatives of commerce and finance ministries, Bangladesh Bank, Securities and Exchange Commission and Institute of Cost and Management Accountants of Bangladesh (ICMAB).

The committee will follow the best practices of buy-back policies in the world including those in India, Sri Lanka, Singapore and Japan, officials said.

They added the body will give specific recommendations on fixing value of shares to be bought back by the companies.