Listed companies may be barred from transferring funds to subsidiaries

The listed companies might soon be barred from providing interest-free loans to their subsidiaries or non-listed companies.

A move to this effect is under consideration of the securities regulator---the Bangladesh Securities and Exchange Commission (BSEC)--- with the objective of improving the listed companies' financial strength and ensuring the interest of the investors, officials concerned said.

They said the listed companies would also be asked to charge interest on the total amount of loans they have disbursed to their subsidiaries or non-listed companies so far.

They said the companies often provide their subsidiaries with funds as loans, but without any interest.

The BSEC has started an investigation into such fund support to the subsidiaries or non-listed companies, said an official at the BSEC.

He said the regulator is expected to take a decision in this regard on completion of the scrutiny.

BSEC chairman Prof. Shibli Rubayat Ul Islam said the companies, which are not listed with the stock exchanges, received funds or loans from many listed companies without paying any interest.

"Non-listed companies are doing business with the funds of listed companies. But such fund transfer erodes the listed companies' capacity in the matters of disbursing dividends," he told the FE.

He said the shareholders of listed companies are not the owners of the non-listed companies that are doing business with the funds received from the former.

As a result, he added, the owners of the non-listed companies were getting the benefit out of the interest-free loans from the listed companies.

"Like the banks, the listed companies will have to charge interest on the loans to their subsidiaries or non-listed companies. We will also ask the listed companies to charge interest on the total amount of loans so far disbursed to their subsidiaries or non-listed companies," said the BSEC chairman.

At its first meeting immediately after taking charge, the incumbent commission, led by Prof. Islam, imposed a large amount of penalty on a cement manufacturer for disbursing loans to its subsidiary without charging any interest.

As part of the regulatory measures, the BSEC on August 13 last sent a letter to all the listed companies asking information about the transfer of funds or disbursement of loans to their sister concerns or associate companies or any other non-listed companies.

Recently, the regulator has again reminded many companies for submitting information in this regard, said a senior official at the securities regulator.

"Many listed companies disbursed loans to their subsidiaries or associate companies though they have borrowed funds from banks at higher rate of interest. As a result, the shareholders of the listed companies are being deprived of the expected dividends, he said.

He said the BSEC is yet to get the necessary information in this regard from all the companies listed with the stock exchanges.

He said the information so far collected is now under the scrutiny of the regulator. "The regulator will deliver its decision after assessing the amount of loans."

It has been observed over the years that most of the companies raise funds from the capital market to repay bank loans in addition to expanding their operations.

"The bank loans taken by many companies with high interest rate are repaid with the funds raised from the capital market.

But those listed companies provide loans to subsidiaries or associate companies without charging any interest," said the BSEC official. "The regulator will no more allow this practice."

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