Decided not to purchase shares from defaulters
July 10, 2024 10:50 PM
Last updated: July 10, 2024, 11:00 PM
Infographic: TBS
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Infographic: TBS
Investment Corporation of Bangladesh (ICB), one of the largest institutional investors in Bangladesh’s stock market, has formulated a new investment policy to invest in the capital market to counter allegations of investing in weak and junk stocks.
According to experts, the state investment bank adopted the policy from July 1 as part of a plan to strengthen its financial base, which is weakening day by day due to poor investment choices, and to increase transparency and accountability in investments.
As per the new policy, ICB will not sell its shares at a loss, will not purchase shares in Z category or from loan defaulters and will not purchase shares where sufficient information about the business operations is not available.
Further, as per the new policy, ICB will not hold more than 10% of the paid-up capital of any company.
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However, if previously purchased securities are transferred to the Z category, the policy states that, if necessary, investments can be made in Z category stocks as a strategy to lower the average purchase price.
If you invest in a mutual fund or exchange-traded fund (ETF), which is a new capital market product, your investment will be equal to or less than the sponsor’s investment.
Additionally, when an ICB acts as a trustee or custodian for a listed or unlisted mutual fund, the ICB or the Unit Fund will not invest in that fund.
The ICB has restructured its Portfolio Management Committee, which is mandated with buying and selling securities, initial public offerings, accredited offerings and investing in eligible stocks, to manage the portfolio based on the research team’s report.
ICBs, whose primary mission is to support the stock market, invest in the capital market with government support and loans from state-owned banks.
Currently, ICB is facing a shortage of funds to support the capital market due to the economic downturn and is raising fresh funds and has submitted a letter to the Bangladesh Bank (BB) seeking financial assistance of Tk 5,000 crore for investment in capital market and repayment of short-term loans.
In this regard, the central bank has recommended securing a sovereign guarantee from the finance ministry to avail financial assistance and the process is currently underway, an ICB official said.
The modern policy has been formulated to ensure transparency and accountability in ICB’s investments, ICB Chairman Suborna Barua told TBS. “This is the first time we have formulated a concise and transparent investment policy for investments in the capital market.”
He added that ICB will now invest in the capital market in light of the new policy, which will help strengthen the investment bank’s financial base.
“We have come up with a policy of not investing in Z category stocks. ICB generally does not invest in junk stocks. Though we currently have some investments in junk stocks, we will gradually exit such investments.”
The investment monitoring team monitors the investments monthly
To implement the policy and strengthen supervision over investments, the ICB has set up a four-member Investment Supervision Committee, headed by its chairperson Suborna Barua, professor at the School of Banking and Insurance, University of Dhaka, to oversee investments in the market by the Portfolio Management Committee.
The Supervisory Committee meets monthly after the meetings of the Investment Audit Committee, which has the mandate to audit investments and share buying and selling on a monthly basis.
“The Investment Oversight Committee will oversee the investments made to safeguard the interests of the ICB, the government and the market as a whole,” Saborna said.
He said the Investment Audit Committee will conduct a monthly audit of all investment decisions for a month to ensure that investment decisions are made and implemented in accordance with the investment policy.
Saborna said if any discrepancies are found, the committee will report them directly to the investment oversight committee, which will later recommend measures to the board.
“Furthermore, going forward, the utilisation of special funds received by ICB from the government will be governed by this policy, in line with the guidance of the Investment Monitoring Committee,” he added.
The Portfolio Management Committee is also under its supervision.
The ICB plans to strengthen the oversight of the Portfolio Management Committee to ensure transparency and proper management of the portfolio.
According to the policy, committee members, dependents and family members cannot take margin loans against BO accounts held with the entity or its subsidiaries.
After the implementation of this policy, updated BO account statements will have to be submitted to the Managing Director of the company every month.
No member may serve on the Portfolio Management Committee for more than three consecutive years.
Saborna also said: “The new investment policy introduces some new aspects that did not exist before. Members of the Portfolio Management Committee cannot serve a term of more than three years.”
Meanwhile, ICB has slashed its equity market investment target for the current financial year 2024-25 by about 30 per cent due to a lack of financial support.
According to the annual performance agreement with the finance ministry, the ICB’s investment target for the current fiscal year has been reduced to Tk 100 billion from Tk 140 billion in the previous fiscal year.
The company also cut its margin financing payment plan by about 30 percent year-on-year to Tk 2.5 billion and cut its share trading target in the secondary market of the stock exchange by 33 percent to Tk 8,000 billion.
From July to March of 2023-24, the ICB incurred a loss of Tk 2,670 crore. During this period, its interest income was Tk 1,367.1 crore.
However, the company will have to pay about Tk 6.75 billion in interest to depositors and lenders, causing its net interest income to fall to a deficit of about Tk 5.39 billion.
During the period, the company’s capital gains fell 60 percent to Tk 10.5 billion from Tk 26.1 billion in the same period last year.
Dividend income also fell 10 percent to Tk 28.4 billion from Tk 31.6 billion a year ago.
The company’s share price closed at Tk 60.60 per share on the Dhaka Stock Exchange yesterday.
