Investor Relation Practice in Bangladesh

7/31/2019 Investor Relation Practice in Bangladesh

1/36

1 | P a g e

1. MBL AND INVESTOR RELATION DEPARTMENT

Although Investor Relation practice is the most efficient way for any publicly held firm to keep

connected with its diverse stakeholders, the matter of fact is that, Bangladesh corporate sector has

yet to develop a full fledge Investor Relation Department. So, the Investor Relation Department of

MBL will be the first full fledges attempt to act as an intermediary between MBL and its

stakeholders, especially investor community; which will certainly be one of the real life application of

Uncommon Sense. As an intermediary, IR department will not only facilitate communication flow

from MBL to externals but also it will make the reverse flow happen as well. That is too say the

information loop will be like duplex transmission rather simplex. And this duplex format obviously

helps MBL to be more market oriented that will ultimately serve long run sustainable profitability for

the firm.

Marico Bangladesh

Ltd

MB

Investor Relation

De artment

Retail Shareholders

InstitutionalShareholders

Regulatory Bodies

Financial Media

AnalystTwo Wa Communication


2/36

2 | P a g e

2. ACTION PLAN 1: DISSEMINATING PRICE SENSITIVE INFORMATION

The most critical success factor of MBL Investor Relation department would be to disseminate

material information towards investor community in a timely manner. By doing so we can

simultaneously facilitate a informative trading decision as well as communicate our willingness to

ensure full transparency and openness.

Now the matter of concern is that what should be the information content, how much should be

disclosed, and finally when and how it should be disclosed?

As a prime part of my study, I tried to resolve these basic underlying questions that are very much

crucial for our success.

In the most basic form, we will comply all sorts of regulations of Corporate Disclosure Policy

prescribed by SEC. Then I tried to show market oriented evidences of information failure in the

existence of current law. And lastly again in the light of empirical evidences, I propose some specific

tasks that have to be accomplished to apply Uncommon Sense.

2.1 Regulatory Requirements Regarding Disclosure

CONTENTS

Any material information of a factual nature that can influences the value of a company security or

investor decisions as to whether or not to invest or trade must have to be publicly disclosed in a

manner that can be ensure equal treatment for all related parties therein. The information contents

are:

The declaration or omission of dividend and/or earnings.

Acquisit ion or loss of a significant contract.

A significant new products or discovery.

A change in control or a significant change in managements.

The borrowing of a significant amount of funds.

A joint venture, merger, acquisitions or takeovers.

Significant lit igations.

The purchase or sell of a signif icant assets.

A significant change in capital investment plan.


3/36

3 | P a g e

Significant labor dispute with subcontractors or suppliers.

A tender offer for another companys securit ies.

Policies and Timing of Disclosure

The exchange expects a company to notify the exchange in advance of any disclosure if the

material information is of a non routine nature or is expected to be or is expected to have substantial

impacts on the market for the securit ies.

Besides that any public disclosure of material information should be made by an announcement

released simultaneously to be business and financial news media.

2.2 Evidences of Information failure in Existing RegulatorySystems

Some market oriented evidences suggest that existing regulatory requirements fail to eradicate the

problem of asymmetric information from market t ransaction. So it will be our continual trail to

improve both our information content and medium which will at least create an approximate perfect

market for our security in weak form of efficient market.

Now lets discuss some aspects of information failure in the light of empirical evidence:


4/36

4 | P a g e

1. RUMOR SPREADING AND SPECULATIVE ACTION

Case 1

Company: Keya Cosmetics Ltd.

Situation Analysis:

In market, there are a lot of rumor regarding this specific firm. For example, some most common

rumors are- this firm might establish factory in Meghalaya, might assign its overall marketing

responsibility to any specialized Malaysian firm, they might takeover any foreign firm to broad its

operational portfolio etc. As such types of rumors are spread, instantly market price goes up to

reflect these hopeful expectations. And afterwards with the decrement of index value, enthusiasm of

investors become vanishes like bubble and price shifted down warded.

In face of huge volatility both in market

price and trading volume, in August 2008

DSE formed an inquiry committee to

investigate the real causes. But nothing

was disclosed from the investigation.

Besides that, from firm side no

clarification has been provided with

respect of these rumors. And investors

have known that they wouldnt get any

feedback to clarify these ambiguous

situations. So they communicate with the

firm very rarely. All of these events have

made the firm security completely

speculative class and throughout last one

and half years,

Both its trading volume and market price have experienced substantial volatility. Lets verify these

discussions in the light of statistics. From the above table, we are seeing that the variability of this

share rate of change is almost four times greater than overall market measure. Besides that it is

evidential that the first force behind price change is new information, which is solely related to

particular firm fundamentals. Second force in particular price change is the change with overall

market index. Here it found that there was no important price sensitive information about Keya

Cosmetics during this particular period, besides that its very low covariance with market index


5/36

5 | P a g e

proves that there was some third forcebehind this abnormal level of variability. Now what is that

third force? It is nothing but above mentioned rumors.

Now lets investigate the roots of these rumors. To see this in my own eyes, I visited some brokerage

houses such as ARIES, International Leasing and Finance Securities

Etc. There I talked with investors who have real hand practical knowledge by facing all of these

adverse things.

FINDINGS FROM THE FACTS

There exist some syndicate in our market comprising of individuals with huge purchasing power and

sometimes Brokers themselves. These syndicates possess such extent of purchasing power that they

can manipulate any particular share price as their willingness by spreading rumor and distort market

perception. As a vehicle of rumor spreading they use some agents who wandering houses to houses

and try to spread baseless rumors. As a common technique, sometimes they shout by mentioning

any particular security and persuade people by saying that, just purchase the share as much as

possible, it will increase within two/ three days or leave it , price will fall. And maximum time

general, even knowledgeable investors fall in their trap, because everyone knows that these

particular guys are big fishes. Brokerage houses fail to take any action against them because of either

their non corporate structure or they, themselves are linked with them. Their main targets are firm

with relatively small market capitalization, because with their purchasing power they can create both

abnormal buying and selling pressure in the price of these particular securities.

Now I want to give an example of strength of these manipulation syndicates by using the example of

BD Auto Car Ltd.


6/36

6 | P a g e

Case 2

Company: BD Auto Car

From the table it is evident that the recent price hike is quite abnormal in terms of any sort of new

information arrival in market. There has no logical reason behind this abnormal price hike. The only

price sensitive information throughout last few months is the announcement of including 3rd

compressor in its productive capacity. Although the firm expected 75% revenue increment, analysts

think that this is overestimation of revenue increment and this share is the victim of gambling action.

IMPLICATION FOR MBL SHARE

What is the implication of these events and evidences for MBL share?

We are going to float 5% of our total share of post IPO age. Now say that our share would be traded

in market at a price of 80 taka. In that case the capitalization of frequently tradedshares would be

near about 120 million taka. As I mentioned earlier gambling syndicate possess such extent of huge

purchasing power that they can very easily manipulate the market of relatively small capitalization

share. So in that sense we will be in potential area of danger.


7/36

7 | P a g e

Now to protect ourselves from this malpractice, I want to recommend some specific courses of

action:

Firstly we will have to detect the prime causes of these rumors. Generally it is seen that

maximum rumors are spread about these firms whose have no clear disclosure regarding

their basics. Sometimes, investors even dont know about the firms operating areas. And

gamblers take this golden opportunity to manipulate market as per their self fulfilling

interest. Most fearing fact is that, in the face of rumors, investors very rarely

communicate with firms to clear the facts. Because firms have yet to develop a compact

system to fulfill information demand. So it will be our main target to make the people

believe that we are always here to serve your information demand. And to do so we have

to establish some medium for information dissemination with widely recognition and

very much easy access.

Our IR team will has to stay visible and factual in tone in the face of rumor.

Besides that in the time of overall market volatility we have to focus on long run and

balance sheet strength.

I am not ensuring that by doing the above tasks we can certainly stop the rumor f low and speculative

action toward our share thus smooth the price trend. It will take time to absorb such sophisticated

service by the overall market. But lets hope for t he best.


8/36

8 | P a g e

2. FAILS TO PROVIDE FULL EXPOSURE TO TAKE INFORMATIVE TRADING DECISION

Besides regulatory disclosure policy failure, our investor have a very common tendency that without

knowing fundamentals, even smallest piece of information, they trade by following others. For

example, it is very common that Z category shares with very many distressful fundamentals capture

position in the list of top gainers by price, trading volume etc. In this context, I want to mention the

name of Rangamati Food Company. Most of the time their office kept locked and even their

productive capacity is completely halted for many days. Despite these facts, their shares are

regularly traded in market and they placed in the list of top gainers. Apart from this particular

example, there are too many Z category shares about which investors have no concise piece of

information. And alarming facts are that neither regulatory bodies nor their regulations can do

anything to stop the trading of this part icular type of shares.

3. FAILS TO CREATE LEVEL PLAYING FIELD FOR ALL SHAREHOLDERS:

It is very much important that every investor has equal access of price sensitive information in

approximately same time frame. But as stated earlier, our current regulations fail to ensure this

fundamental right to all, especially for retail investors. Institutional investors always posses both

better information and analytical power to verify the impacts of these information than retail

investors. And this discrimination is most acute for qualitative piece of information, sometimes

which may create substantial impact on trading decision. In present context, maximum firms dont

disclose facts regarding change in industry dynamics, competitive position etc. which certainly push

retail investors into disadvantageous positions. I want to show you an example in this respect.

Company Name Trade Vol. Value in BDT. Weekly Return Market Cap. 5 yr EPS range NAV

Meghna Condensed Milk 1320500 17047900 42.16% 25.12 Cor (14.46)-(.41) -34.36

Lexco Company 1970 463200 40.59% 8.45 Cor (121.19)-5.38 -46.65

Anwar Galvanizing 40000 13404100 54.61% 45.34 Cor (34.97)-6.65 117.3

Meghna Pet 432000 330034000 17.14% 13.92 Cor (1.99)-(.03) 2.85

Sonali Paper 400 5900 13.85% 21.12 Cor (3.67)-.15 -2.35Aziz Pipe 15590 4055000 12.44% 12.4 Cor (159.54)-(6.64) -254.39

Market Performance Fundamentals

Performance Analysis of Z category share for the week 28th march to 2nd April 2009


9/36

9 | P a g e

Case3

Company: Apex Foot ware

Situation Analysis:

From the price chart is clear that the price of this

particular firm was much higher in 2008 in

comparison to 2009. And from the table we can

see that the proportion of retail investors is higher

in 2009. Now the fact is that, in the ending of

2008, recession pushed the price of all sort of

lather products substantially down. As a rational

consequence, price of final product of this

particular firm was also substantially down in

international market. And as the contribution of

export market in total revenue was approximately

60%, overall revenue fall into immense pressure.

In addition to that a large part of its inventory

Consists of lather purchased in higher price. So it is obvious that in the face of recession its gross

margin was reduced substantially. Institutional investors can predicted this alarming situation and

stated to sell their holdings and as retail investors were not aware they purchased share on the basis

of past performance of this firm. And when the stock price is lower, maximum of it is held by retail

investors, which make some of t hem experience substantial loss.

IMPLICATIONS

If this firm makes any appropriate disclosure to all that make retail investors aware about the

alarming future, certainly this information discrimination can be prohibited. I dont want to indicate

that, by doing so firm can stop the downward pressure of price. I just want to say that at least all

shareholders share this burden equally, rather profiteering solely by institutions at the cost of

individuals.


10/36

10 | P a g e

2.3Scope to apply Uncommon Sense

By observing all of the abovementioned facts, it is quite obvious that there still remains a lot of scope

to improvise the price sensitive information dissemination system for us. By improving our systemwe can very easily differentiate ourselves in comparison to others as well as fulfill our pre mentioned

purposes. Following are the recommended aspects in which we can improve ourselves.

1. PROVIDE VERY CONCISE AND DETAILS INFORMATION ABOUT EARNINGS

To our investors most valuable piece of trading sensitive information is about earnings. Track record

shows that, more or less all firms only disclose the quantitative value rather provides qualitative

judgment and rationale behind change in earnings as well. And this practice sometimes createabnormal market panic, thus shift the price very abruptly. Here is an example,


11/36

11 | P a g e

Case 3

Company: DESCO

Date: November 2007

Situation Analysis

This was the first year of enlisting for the

firm. So rationally there was lot of

ambiguity in the mind of investors

regards the firms expansion and dividend

policy. Their half yearly EPSwas 35 taka.

So everyone expected that annual EPS

would be at least 70-80 taka because it is

generally seen that firms perform

relatively well in second half. But when

annual EPS was announced, everyone

became frustrated by seeing that it is only

55.94 taka. Besides that recommended

dividend was 25% cash which is also far

below expectations. All of these perceived

negative facts created substantial market

panic that forced the price to 1150 taka

within next few days after announcement, from 1350 taka in announcement day. And within next

one and half month it reduced to 960 taka.

Rationale and Implication

The first reason behind this market panic was unexpected annual earnings. Like most generalized

case, this firm also announced only quantitative value of earnings rather providing any sort of

rationale and explanation behind this unexpected earning. Actually the main reason was the

inclusion of Tongi project in operational portfolio of DESCO, which was taken over from DESA in 4th

April as per government directives. This particular project had substantial system loss for previous

managerial flaw as well as accumulated loss in profit and loss accounts. So after accumulating this

loss into DESCO accounts, logically it pushed the total earnings down. But from the side of this firm,

there was no disclosure regarding this consolidation of loss in its profit and loss accounts. So market


12/36

12 | P a g e

participants failed to detect whether the reason was for deteriorating operating performance or

something other.

The second reason was unexpected low dividend announcement. As usual firm didnt provide any

rational behind dividend recommendation. As a newly enlisted firm, this firm had several expansion

projects that will ultimately create greater shareholders wealth.

So it is quite obvious that if the firm properly provided rationales behind its action, surely market

could understand the long run prospect and act positively.

OUR LEARNING AND DOING:

As mentioned earlier, the most crucial piece of information to our market participants is

about earnings and dividend. So we will have to disclose proper rational and explanation

rather solely announce the quantitative values.

In the face of earnings variation from year to year, it is compulsory to disclose all facts,

whether external or internal, as well as long run impacts associated therein.


13/36

13 | P a g e

2. CAUTIOUS STEPS TOWARD DETERMINING DIVIDEND POLICY AS WELL AS PROVIDING DETAILS

DISCLOSURE.

Case 4

Company: Square Pharmaceuticals Ltd.

Date: July 2008

Situation Analysis

Throughout last several years, this firm

provided 90-100% dividend at various

combination of cash and stock. So

everyone expected that this trend will

continue for this year too and market

expectations were 80% stock dividend.

Basis of this expectation was a rumor that

as market leader and mature firm, Square

will provide at least 80% bonus. By tracing

this rumor market participants started to bid the price up. And in the day of announcement price

hike to 5500 taka at 12 pm from starting price 4990 taka. But at 12 pm when the actual

announcement of only 35% bonus was come into market, investors promptly replied at a much

greater pace than that of pre announcement. Price reduced to 4600 taka within 2-3 minutes. After

this collapse, price never back to its actual level and most staggering fact is that throughout last

several months, share is traded at a price below 3000 taka.


14/36

14 | P a g e

Critical Analysis of facts

Now lets find the underlying causes of this price failure which made many retail investors suffer

great loss.

Firstly it is clear from the table that capital growth rate was much higher than the earnings growth

for last several years. This created substantial pressure upon EPS because of dilut ion at a great pace.

Now during March/April a market research firm published a report in which it was predicted that

Bangladesh pharmaceutical sector may experience negative growth in next fiscal. As market leader,

Square enjoyed positive growth within this adverse environment which is obviously a symbol of

success for the firm. But growth will not like previous years. So it is rational that in the face of low

earnings growth, if any firm declare substantial bonus than its earnings will diluted hugely which may

create questions about firms ability to successfully manage the operating success. So management

announced such dividend that will create less pressure upon earnings.

But most of the people was neither aware about actual dynamics of industry nor the report

regarding it. Which result the formation of irrationally higher expectation.

OUR LEARNING AND DOINGS

Keep the overall market aware about the change in industry dynamics. Because industry

may pose major threat or create opportunities over operating performance. As change in

industry dynamics affects every firm within it, we can make our stakeholders visualize our

success over our competitors that certainly prohibit rumor and undesirable expectations

formations.

We should adopt such a dividend policy that will create value both for current and

prospective shareholders. So our dividend will follow sustainable long run growth of

earnings rather abnormal shift. By doing so our price trend will be smoothed as well as

dividend cut can be avoided. This second point is very much important, because dividend cut


15/36

15 | P a g e

perceived as a signal of severe performance deterioration and market over react in this

situation.

Change dividend policy as per maturity stages and provides proper level of disclosure in this

regards.

Clearly describe our expansion plan and opportunity. This includes disclose the analysis

regarding most valuable options and their impacts on overall f irm value.


16/36

16 | P a g e

3. PROVIDES CLARIFICATION REGARDING NATURE OF RELATIONSHIP/ TRANSACTION WITH

RELATED PARTIES.

Case 4

Company: Aftab Automobiles Ltd.

Date: March, 2009

Situation Analysis

From February price started to show

unusual hike. To investigate this abnormal

pattern, DSE asked explanation from

management. But they inform that there

have no known facts to them. Most

interesting fact is that, among market

participants there was a rumor that

Navana CNG Ltd, a concern of Aftab is

going to be directly enlisted in market.

And this perceived good news encourage speculative actions and force participants to bid the

price up. Within15th May price hike to 1500 taka and in 18th May, DSE halted its trading.

Critical Analysis of Facts

Realit y is that fundamentals of Aftab havent improved to such an extent that can rationalize this

price hike. Rather this was occurred because of ambiguity about its relationship with related

parties. And speculators completely took this opportunity of information failure and spread

rumor to fulfill their selfish interest at the expense of many retail investors.


17/36

17 | P a g e

Market participants locked in this trap, because they correlate Aftab with ACI. But these two cases

are completely different. ACI Formulation was fully owned subsidiaries of ACI Ltd. ACI floated 36% of

its holding in market and used these proceed to take two expansionary projects for ACI Formulation

that was substantially value additive. Now as per ISA rules, if any company holds more than 50%

share of another company, then it possesses controlling power and financial statements will be on

consolidated basis. So financial interest of ACI Ltd shareholders is directly related with the value

additive projects of ACI Formulation. And it is very much rational that this will reflect in the market

price of ACI Ltd).

Now come to the point of Aftab Automobiles, both Aftab and Navana CNG are sister concern of

Navana Group, thus both of the firms are in equal line in terms of relationship. However, Aftab has

purchased 15% share of Navana CNG at face value, so neither it has any neither partial nor full

controlling power over Navana CNG. Its financial interest is just like other general shareholders. And

as the financials or expansion policy of Navana CNG is not disclosed to public, its financial prospect is

not clear at all. But market observers expect that may be its share will be traded at 80-90 taka. So it

is quite irrational to hike Aftab price up to that extent.

Matter of fact is that most of the investors dont have clear idea regarding the basic difference

between the cases of Aftab and ACI. And speculators are taking this opportunity to manipulate price.

It seems from reality that insiders are also taking the chance. Totally near about 50000 shares are

sold during this abnormal hiking period. Now implication of this market manipulation lays in the long

run stock performance and reputation of this firm. Certainly lot investors will loose even their entire

capital when this bubble will vanish and price correction start.


18/36

18 | P a g e

OUR DOINGS

From the above mentioned case it is clear in order to establish ourselves as a highly ethical firm

and maintaining price stability, we have to clearly disclose the nature of relationship as well as

transaction with them. If we do this, no one can spread any sort of rumor in this regards and

capitalize abnormal gain in the expense of general investors, our long run reputation standings

depends on whom.

Besides that any insider shouldnt take the opportunity of ambiguity to capitalize abnormal gain

at the expense of general shareholders.


19/36

19 | P a g e

4. CLEARLY STATE FACTS ABOUT CONTRACT WITH THIRD PARTY

Case 6

Company: Bata Shoe Company

Date: May, 2008

Situation Analysis

During May 2008, there was a rumor in

market that Bata is going to sign a

manufacturing agreement with NIKE, a

highly branded company for stylish shoes.

Market participants thought that there

may be some joint venture between

these two firms. As usual, not verifying

this highly encouraging news, market

started to respond very enthusiast. And

the price goes to 375 taka from just 265

taka within 15 days.

FACTS FINDINGS

Actually Bata executed a little dealership agreement with NIKE Singapore, under which NIKE

products will be sold in selected Bata store and this company will entitle only trade discount at a

variable rate mutually agreed upon time to t ime.

But a specific class of investors probably got the news advance of public disclosure and distorts it

into such a pattern that persuades general investors to bid the price higher and higher.

There was some sort of information lick with which certainly insider(s) was/were related. And lastly

when overall market becomes fully aware about the reality price started to fall, although it remained

a higher level than pre hike age.


20/36

20 | P a g e

OUR DOINGS

As per rules, whenever companies become knowledgeable about rumor spreading regards them,

instant clarification note disclosed to public are compulsory. But it is very much common convention

in Bangladesh that always companies waits until receiving solicitation from Exchanges and in the

interim periods gamblers start to manipulate market.

So whenever we will become knowledgeable about any rumor relating us, in t he init ial phase we will

try to detect the actual nature of rumor and immediately disclose the facts to the general investors

instead wait for regulatory disclosure.

5. DISCLOSE REPORT AND FACTS REGARDING CHANGE IN INDUSTRY ECONOMICS

From the case of Apex Foot ware and Square Pharmaceuticals it is obvious that information

regarding change in industry dynamics is very much important in terms of trading decision. But in

Bangladesh, more or less no firm discloses this important information in their own system. So here

lies great scope for us to detail disclose these information in timely basis.

6. DETAILS DISCLOSURE ABOUT MANAGEMENT

Information relating to persons behind the actual operations of firm is considered as very much

valuable piece of information to investing community. Reputation of directors and /or managers acts

as a prominent factor to decide whether a particular firm will be a ethical and profitable one. For

example, Mr. Mahbub Jamil, former Chairman of Singer Bangladesh Ltd, also acting as Founder

Chairman of International Leasing And Finance Ltd. And solely his career track record helps ILFS to

grow rapidly.

So we can use our IR website to provide details about our very much young as well as successful

managers.

7. INFORMATION REGARDING BUSINESS POLICY, STRATEGY AND COMPETITIVE POSITIONING

At first glance it may seem that disclosing these information can serve our competitors to let them

know about ourselves. But reality is not like that. In developed market this sort of information is

elaborately disclosed in web sites. Reputed firm like Nikkon, IBM, GM etc also among the disclosers.


21/36

21 | P a g e

This disclosure helps investor community to transparently know about firms qualitative insight and

make a much more informative trading decision.

Its true that situation is very much different in our country. But if we can follow a such structured

pattern that will simultaneously enhance our transparency and keep our corporate confidentiality, it

will certainly add our value.

8. PUBLISH FULL FLEDGE FINANCIAL STATEMENTS

By following the Corporate Governance Guidelines formulated by Bangladesh Enterprise Institution

and Regulatory Guidelines we can provide a full fledge FS to our investment community. From

functional aspects Square Pharmaceuticalsand IDLCand Aesthetically Berger paintscan be example

for us.


22/36

22 | P a g e

2.4Medium of Information Provision

We will use the following medium to provide relevant information to our investment community:

Passing to Regulatory Authorities. Investor Relation Web Sites.

Phone Call/ Hot line.

Face to face meetings.

Press Release.

Seminars, presentations and press conferences.

Conference Call.


23/36

23 | P a g e

3 ACTION PLAN 2: PROHIBIT INSIDER TRADING

Insiders are those have the possession of price sensitive information of a particular firm in advance

of its public disclosure. In our country this malpractice is so acute that market observers stronglybelieve that one of the major reasons of unreasonable market volatility is inside trading, especially

by managers and directors. As the corporate disclosure is very much insufficient in our country that

means general investors know very little about investing firms and insiders hold superior knowledge

regarding the change of fundamentals of firms, always insider trading is taken as a signal by the

overall market. If any insider submits buy order than market takes it as a change within the firm that

may improve overall fundamentals and vice versa. So insider trading forces the market to react

irrationally in absence of material information.

Besides that possession of material information by insiders in advance of public clearly provideundue advantage to insiders, which is completely unethical. And when regulatory authorities can

detect such malpractice and impose any penalty to relevant person(s) it creates very much bad

impression about firms integrity to market participants.

Now to show the impacts of inside trading in the price trend and volume of trade, I want to present

two market oriented examples.


24/36

24 | P a g e

Case 7

Company: Mutual Trust Bank

Date: March, 2006

Sequences of Events

25th February, 2004 41st board meeting.

In this meeting financial statement for FY 2003 was placed to Board

and discussed. Rules are that date of AGM and dividend

recommendation should be announced in the same meeting. But

this firm refer it to 42nd meeting rather comply with rules. One of

the directors and members of audit committee Mr. Samuel S.

Chowdhury, a family relative of Mr. Tapan Chowdhury was present

in the 41st meeting. So he must have the knowledge regarding the

actual financials of the firm, which was undisclosed to general

public.

31st March, 2004 Mr. Tapan Chowdhury declared his intention to buy 6000 share of

this particular firm.

4th April, 2004 42nd board meeting

Board fixed the date of AGM as well as declared 20% stock dividend

on the basis of financial statement, 2003. As usual stock price

increased after the declaration of dividends.

IMPLICATIONS OF THESE EVENTS

General rule is that fixation of AGM date and recommendation of dividends, if any, should be

accomplished in the same board meeting in which financials are placed.

This rule is like that because whenever financial statements are placed and discussed in meeting,

everyone presenting the meeting becomes aware about the undisclosed fundamentals of the firm.

And if dividends, which are generally based on financials, are not disclosed in the same meeting, it

creates opportunity for insiders to trade on the basis of undisclosed public information. This is


25/36

25 | P a g e

completely unethical. For this particular case the same was happened. When the firm referred FS of

2003 to submit in next general meeting, it was clear from circumstantial evidences that Mr. Tapan

Cowdhury knew the undisclosed information through Mr. Anjan Chowdhury and attempted to

involve him in inside trading by giving declaration for buying banks share ahead of the

recommendation of 20% dividend made in 42nd board meeting.

This is a wonderful example how the flaws of firm can give opportunity to insiders to act in the basis

of undisclosed information.

Case 8

Company: Popular Life Insurance Company

Date: March- September, 2008

Situation Analysis

SEC formed a inquiry committee in March 2008 to

find why the price of this particular share goes to

taka 5000 from taka 811 in June, 2007. And they

found that Arif Ahmed, brother of four directors

of the firm, purchased 181150 shares during the

period March to July, 2007. And several very

important price sensitive information came into

market during July, 2007. It is quite obvious from

the facts that as an insider of the firm Mr. Arif knew about these information in advance of their

public disclosure. Because it is rational that with the disclosure of these information, market will bid

the price up to reflect the change in company fundamentals. And if anyone can purchase bulk of

share before price goes up, then he/she can capitalize abnormal return by selling shares during

booming period. This event was just like that. Price was started to rise during July, 2007 and it

reached to 5000 taka from 811 taka. The most valid proof of t his inside trading is that just before the

announcement of increment of operating revenue in 7th march 2007, he purchased 10150 shares in

his own accounts. And his wife also purchased a bulk of share as like him. Main reason behind this

abnormal price hike is that when any insider start to purchase bulk of share, everyone tries to mimic

them and thus ultimately price become far higher than its intrinsic level. And after their findings,

inquiry committee accused Mr.Arif for involving with inside trading as well as manipulating the


26/36

26 | P a g e

market. So they imposed 10 million taka penalty to Mr. Arif and also imposed monetary penalty to

one of the directors of the company.

And the next event of inside trading happened during July to September, 2008. during this period,

five directors of the firm sold share to take the chance of bullish market of their security holding.

Besides that two positive price sensitive information came into market. But trading by directors

offset these good news and price started to fall very sharply. So it is the repetition of the argument

that, market participants always overreact as per insiders trading rather makes the appropriate

adjustment of information into prices.

Our learning and Doings

Establish and enforce effective procedures to prohibit open flow of price sensitive among

insiders, especially among employees, who always remain keeping in touch with such

information.

Agenda of BOD meeting should be fixed in such a manner that will ensure level playing field

for all shareholders ( Mutual Trust bank)

We have to establish some specific procedures that restrict insider trading with following

the release of annual statements or other releases set forth the financial condition and

status of the company. ( Regulatory Prescription)

Prohibit very frequent t rade by insiders within very short span of tome. (Mutual Trust Bank)

We can establish our own policy in this regards.(BOC Ltd.)

There should have some policy that directors and managers have to inform firm about detail

of their BO accounts.( Sakman F.Rahman Case)


27/36

27 | P a g e

4 ACTION PLAN 3: KEEP THE FIRM CONNECTED WITH DIFFERENT STAKEHOLDERS

As a intermediary between MBL and its different stakeholders, it will be the mere responsibility of IR

department to keep connected the firm with different stakeholders. The numerous types of

stakeholders communication process is below:

4.1Regulatory Authorities

One of the most crucial tasks of IR department will be to help the overall firm to avoid all sort of

regulatory violations and adopt new regulations as soon as come into enforcement. These tasks are

crucial; because our standing as a highly ethical and transparent firm might be deteriorated if any

market related violations will be occur by us. Besides that as market regulator SEC always encourage

the full compliance of rules not only for the sake of overall market stability but also smooth the price

trend of individual firm and establish a posit ive image in the mind of market participants.

Sometimes regulatory authorities change rules to cope with the changing nature of environment.

And in most of the cases, it is seen that firms are not aware about these change, thus conduct

regulatory violations later.

To establish aposit ive corporate imagein sustainable basis, firstly we have to identify major areas

of regulatory violations and then take appropriate measures to avoid such unexpected events.


28/36

28 | P a g e

Areas of Regulatory Violations

Description Summaty of Action Taken By Commission 2007-08 2006-07

Reffered to Enforcement dept.to take action for not submission 40 42

Asked Explanation on Audited Financial Statements from companies 106 99

Reffered to Enforcem ent dept.to take action against whose expalnation were not satisfactory 44 28

Reffered to Enforcement Dept to take action for non Submission Of Unaudited Financial S ta tements 18 21Asked Explanation for not preparing unaudited Financial Statements as per BAS-34 12 81

Reffered to Enforcement to take Action against whose explanation were not satisfactory 9 7

Appontment of Statutary AuditorsRetention of Auditor Exceeding Consecutive periods 2 24

AGM Reffered to Enforcement department to take action for not holdind AGM 3 25

Asked explanation for non submission of audio visual record 1 6

Ref fered to Enforcement department to take action against whose explanation were not sat isfactory 20

Statements of Dividend payments Asked Explanation for non submission of dividend statements 14

Irregulations found By Corporate Finance Department

Audietd Financial Statements

Half Yearly Financial Statements

Non submission Audio Visual Recording of AGM

DSE CSE

2007-08 81 12 6 47 6 10

2005-06 67 18 11 24 14 7

2004-05 51 7 10 25 9 4

Reffered to EnforcementFY No of Irregulations Inspections Enquiaries

Irregulations found by Surveillance Department

Reffered to Stock Exchanges


29/36

29 | P a g e

Irregulations Found By Supervision and Regulation of market and intermediary departments

2006-07 2005-06 2004-05

Non/ Delayed Payment of dividends 38

Dissemination of price sensetive info 1 3 8

Non submission of Shareholding positions 10 33

Nature of legal Actions 2007-08 2006-07

Penalty 42 32

Directives 1 1

Warnings 68 117

Actions taken by Enforcement Departments


30/36

30 | P a g e

4.2Financial Media

As per regulation any sort of material information should be publicly disclosed by an announcement

released simultaneously to be business and financial news media as promptly as possible

But in the time of publishing price sensitive information through financial media, we have to be

conscious about both the content and language used in publication. Because regulatory authority

always advises to avoid disclosure activity beyond that necessary to inform investor and explicably

essential as an attempt to influence securities prices. Because these types of disclosure is considered

as promotional and unwarranted, which attracts penal provision. And might influence the market

perception as well as securit y pricing that might shift the price downward.

For example, recently Uttara Bank Ltd.has been included in Dow Jones SAFE Index, obviously it is a

great momentum for this company to include in such a prestigious index. Because companies have

to fulfill some pre specified criterions, which mainly depend on financial performance. So normal

notion is that after publishing this favorable news in different international and domestic newspaper,

price will certainly experience upward shift. Uttara bank advertised this facts in Daily Prothom Alo in

31st March issue. But point to notice is that language of this advertisement was inappropriately

worded, which violated securities law regarding newspaper advertisement. And DSE authority

warned the bank to for violating law.

Now what was the impacts of this wrong doing. Clearly it distort the perception of overall market

about the firm. and most staggering fact was that despite the good news, price experienced very

sharp decline. Although overall market was experiencing bearish trend in that moment which

affected all firms, price decline of this part icular firm was abnormal.

Practical implication is that in security market price of stocks mainly depend on perception of

participants about firms. Fundamentals are necessary in that sense these help to shape perception,

nothing else. And besides fundamentals, many other things can influence perception, integrity and

transparency in one of these.


31/36

31 | P a g e

OUR LEARNING AND DOING:

From the above event, it is our learning that in time of delivering any price sensitive news for

newspaper publishing, we should be more conscious about our wordings. Safest way is that fully

comply Corporate Advert isement Policy prescribed by regulatory authorities.

4.3Securities Analysts, Journalists and Others

We will arrange press conference, meetings etc. to communicate some of very important price

sensitive information such as new product inauguration, releasing earnings in historical and

prospective basis, start a new venture or merger etc.

In time of delivering information we will have to observe a open door policy. That means the process

of dissemination will be like that will ensure level playing field to all.


32/36

32 | P a g e

5 ACTION PLAN 4: ENSURE A SOUND PRACTICE OF CORPORATE GOVERNANCE

5.1 Guideline Regarding Corporate Governance at a Glance

Regulatory authority has prescribed a guideline to ensure a sound practice of corporate governance

by all sorts of firms. This guideline is prescribed on Comply or explain basis. That means it is not

mandatory to follow all of the section of this rule, if for any reason any firm become unable to

comply with any rule, then it has to explain the valid ground behind this non compliance.

Here the overall guideline is summarized by focusing on the most crucial parts to give a view of it.

1. The size of the board should be 5-20.

2. To ensure efficiency and transparency, there should be at least one tenth (1/10) of the total

number of company board, subject to minimum one (1) independent director in board.

3. The Chairman of the board and CEO of the firm preferably be separate person.

4. BOD has to report to shareholders the following things transparently and adequately

Ensure the fair and true representation by FS.

Ensure that accounting policies and estimates are reasonable enough and prudently

judged.

FS are prepared in accordance of IAS, as adopted in Bangladesh.

Assurance about firms ability to continue as going concern and causes of doubt, if

nay.

Explain the causes behind significant deviation in operating performance from year

to year.

Details and adequate disclosure regarding dividend policy.

Details shareholding pattern.

5. Audit Committee:

Work as a sub committee of BOD to ensure a fair internal control system.

There should be at least three (3) members who would be elected by directors

and at least one of them should be independent director.

Audit commit tee should report to BOD, authorit ies and shareholders.


33/36

33 | P a g e

5.2 Corporate Governance practice in BangladeshTo get practical exposure about one of the important aspects of corporate governance-

protection of minor shareholders interest, I attended the 13th AGM of International leasing and

Finance Ltd. and the findings are below:

Company: International Leasing And Finance

13th AGM.

Date: 20th March, 2009.

Findings:

Time of the meeting was fixed at 10.30 am. But shareholders started to from 8 am.

But most interesting fact is that near about 1000 shareholders left just by taking thegift pack and they didnt show any interest to attend the meeting.

After starting the meeting I observed with surprise that only 25-30 shareholders

were attend.

Then Chairman invited shareholders to discuss upon the agenda. Only 4-5

shareholders participated in the discussion and most part of their discussion was

about very mere topics like appraising BOD and management. Trial to protect the

interest of minors was rare. From this it is quite obvious that probably these people

were linked with company authority.

Very important part of shareholders discussion is nominate their own Director and

oppose managers proposed directors, if they want. But these things were

completely absent in this part icular meeting.

Every decision and recommendation of BOD was passed without any sort of

opposition, even solicitation of explanation. When Chairman told them to express

their opinion by raising hand only few people from front row expressed their

consent combined. And surprising fact was that this people were same who

participated in discussion. And rest of the hall remains silent in all respect.

This meeting completed in 11.30 am, just after one hour since its inception.


34/36

34 | P a g e

5.3 Recommendation to ensure a sound practice in MBL

From the above discussion, the very poor scenario in Bangladesh regarding corporate

governance is clear. Now to establish a sound system that will help to protect the interest of minorshareholders as well as establish a favorable perception about us, I want to recommend adopting

The code of corporate governance for Bangladeshprescribed by a special taskforce of Bangladesh

Enterprise Institute as the basis of establishing our internal system. Besides that I want to

recommend some specific course of action.

1. Ensure shareholders right : Give ample opportunity to discuss in AGM.

Establish practice of open voting in AGM. Disclosure of agenda in advance of AGM that help shareholders to understand

the impacts of agenda on their investing interest.

Disclose information on equity of major shareholders.

Ensure the right of shareholders in nominating directors.

Right of shareholders to oppose candidate nominated by management.

If we can ensure these aspects then it will facilitate:

A higher and effective attendance by general shareholders in AGM.

Help us to take sensitive decisions in pluralistic environment.

2. Ensure transparent DisclosureThis aspect is already discussed.

3. Ensure effectiveness of Board

Presence of independent directors who are really independent in mind setup.

Performance evaluation of CEO.

Presence of at least three committees- Audit Committee, Nomination Committee

and Compensation Committee.


35/36

35 | P a g e

6 BOTTOM LINE OF ACCOMPLISHMENTS

Inside Trading

Prohibition

Ensure Sound

Corporate

Governance

Price Sensitive

Information

Dissemination

Regular

Communication

with Stakeholders

Establish effective

Feedback System

Regulatory

Requirements

Beyond

Regulatory

Requirements

Create Clear Conceptionwhat the firm actually is

Stop Gambler Action &

Rumor

Facilitate Information

Trading Decision

Achieve Fair Price

Price Stability

Protect the Interest of

Minor shareholder

Making the Share

Investin Clas

Corporate Branding of

MB

Reduce Cost of Capital Successful Brand Extension Fair Price during Seasoned Issue

Enhance Profitability


36/36

7 CONCLUSIVE MASSAGE

At first glance it may seem that IR department has no factual market value that can validate its

worthwhileness from MBL perspective. But after the details discussion based on market oriented

evidences, hopefully I can make it clear that this project will be a perfect Strategic Option. That is to

say although it has no market value of its own, but certainly it will facilit ate the attempt of building

Corporate Branding, for which MBL is striving. And it is redundant to say, in the context of

Bangladesh, how much important corporate branding is. So in order to be true multi brand firm and

succeed profitably in long run, MBL needs successful brand extension of multiple category rather

extensively depend on single brand. Because if any single brand is extended too broadly then even

its origin itself will seem confusing to overall market. Hopefully through successful Corporate

Branding, we can inaugurate several blockbuster brands that will ultimately make us Branded house

of branded products.

Documents

Investor Relation Practice in Bangladesh