Reforming the Path to Listing: Rethinking State-Owned Enterprises in Bangladesh
By Barrister Tahmidur Rahman
In the intricate web of Bangladesh’s capital market, the conversation around State-Owned Enterprises (SOEs) and their potential listing on the stock exchange reemerges from time to time—often driven more by expediency than deep institutional reform. The Dhaka Stock Exchange (DSE) already lists several prominent SOEs such as Power Grid Company of Bangladesh, Titas Gas Transmission & Distribution Company, Jamuna Oil Company, Padma Oil Company, Meghna Petroleum, and the Bangladesh Submarine Cable Company Limited. These entities—despite their critical roles in the country’s economic machinery—do not inspire much enthusiasm among rational investors. Why?
Because in their current form, SOEs remain fundamentally un-investable. And the reasons, though numerous, are all tied to one common thread: a systemic failure to align with market norms, governance practices, and shareholder protections.
The Original Intent: Transparency and Governance
The initial rationale for listing SOEs was noble and sound—improving governance through increased transparency. The logic was that capital market participation, reporting obligations, and exposure to public scrutiny would push state-run companies toward efficiency, accountability, and performance. Shareholders, including the government, would benefit from optimized capital allocation and public confidence.
But what has unfolded is a shallow implementation of this vision. No comparative evaluation was ever conducted to measure whether listed SOEs perform better in governance, efficiency, or returns than their unlisted counterparts. Neither the Ministry of Finance nor the Bangladesh Securities and Exchange Commission (BSEC) initiated any long-term study or metrics-based performance audit post-listing.
So, the fundamental question remains unanswered: Has listing truly improved SOE governance?
The Shift in Justification: Market Depth
More recently, policymakers have changed the narrative. Instead of transparency, the listing of SOEs is now promoted as a method to “increase the supply of quality companies” in the capital market. This is an attempt to address the market’s shallowness—low turnover, limited scrip diversity, and thin institutional participation.
While increasing the volume of fundamentally sound companies is indeed a valid market-deepening strategy, it cannot and should not be done at the cost of investor confidence. Without addressing the structural problems plaguing these enterprises, mere listing serves no purpose but to widen the gulf between paper governance and market reality.
Why SOEs are Currently Un-Investable: A Breakdown
1. Poor Capital Allocation and Cash Mismanagement
A recurring problem among SOEs is their notorious inefficiency in capital allocation. Several state-owned companies sit on piles of idle cash, often not reinvested in core operations nor distributed as dividends. Instead, large cash reserves are parked with weak or questionable financial institutions—likely selected not based on prudence but on internal patronage and kickback potential.
Take the example of a listed petroleum company that reports robust annual profits but declares dismal dividends year after year. The retained earnings are neither reinvested to modernize infrastructure nor distributed to shareholders. Instead, they remain on balance sheets, often earning low returns from dubious fixed deposits.
This is not just poor financial strategy—it’s active value destruction.
2. Complete Neglect of Minority Shareholder Rights
One of the starkest manifestations of institutional ignorance was witnessed in a public hearing by the Bangladesh Energy Regulatory Commission (BERC). Despite dealing with a publicly listed utility company, the entire pricing debate revolved around cost coverage and subsidy levels, with no acknowledgement of minority shareholders.
Regulators and government officials made passionate arguments for keeping margins low, even if it meant the listed entity operated at a loss—because “it is a public service.” While this might hold true for a 100% government-owned entity, a listed company by definition has private shareholders who are entitled to fair return.
The very purpose of listing is defeated if stakeholders are blind to the fundamental rights of minority investors. No developed market treats shareholder equity as optional.
3. Flagrant Abuse in Share Issuance to Government
In one of the most astonishing examples of governance malpractice, Bangladesh Submarine Cable Company raised capital from the government without fixing a price at the time of subscription. The price was determined afterward—at a steep discount to market price.
This is not only a mockery of the capital raising process but a violation of fundamental listing principles. The government, being the controlling shareholder, essentially diluted minority interest at an arbitrary price point.
There were multiple alternative routes—a rights offer, which would have allowed all shareholders to participate proportionately; or corporate bonds, which would have maintained equity integrity.
The fact that none of these were even considered demonstrates a worrying ignorance (or disregard) of market norms.
4. Attempting to Extract Surplus Cash Outside the Dividend Mechanism
In a proposal that thankfully never materialized, there was a suggestion by the previous government to withdraw surplus cash directly from SOEs to shore up the state treasury—without declaring dividends. This, once again, reflects the deep misunderstanding of what listing entails.
If the government wishes to extract value, it must do so through dividends—just like any other shareholder. Any direct cash withdrawal bypassing dividend declarations is tantamount to expropriation of minority shareholder rights.
Such moves create a climate of uncertainty and discourage both domestic and foreign institutional investors from participating in listed state enterprises.
The Way Forward: Prerequisites for SOE Listings
Before floating more SOEs on the DSE, a structural overhaul is essential. Here are some core reforms that must precede any new listing.
1. Performance Improvement Plans (PIPs)
Each SOE must undergo a rigorous performance improvement plan before entering the market. This includes:
- Operational audits
- Strategic capital investment frameworks
- Reduction of excess headcount
- Digitalization of operations
- Introduction of Key Performance Indicators (KPIs) linked to both management and board performance
Without performance reform, listing merely becomes a cosmetic exercise.
2. Training Stakeholders on Market Dynamics and Governance
Regulators, bureaucrats, and SOE board members must undergo structured training on:
- Corporate governance
- Fiduciary duties under the Companies Act
- Capital markets dynamics
- Minority shareholder protection
Unless decision-makers understand the implications of listing, the entire governance framework collapses under its own contradictions.
3. Mandatory Dividend Policies
Dividend policies must be formalized and disclosed prior to listing. The policy should clearly outline payout thresholds, cash reserve justifications, and reinvestment plans. Any deviation must be justified to shareholders through a published rationale.
This not only increases trust but also ensures responsible capital management.
4. Clear Valuation and Capital Raising Frameworks
If future capital needs are expected, the company must commit to raising capital through transparent methods:
- Rights issues
- Qualified Institutional Placements (QIPs)
- Debt instruments like corporate bonds
Private placements to the government without market price discovery must be strictly prohibited.
5. Independent Boards and Audit Committees
The board of a listed SOE must include independent directors with no government affiliation. The audit committee must be truly independent and capable of flagging financial irregularities. Without board independence, minority shareholder interests will continue to be trampled.
6. Transparent Use of Reserves
Idle cash must be monitored, with mandatory disclosures regarding:
- Where it is parked
- What returns it is generating
- Whether it is intended for CAPEX, dividend distribution, or working capital
Auditors must scrutinize these disclosures and flag cash mismanagement in audit reports.
Conclusion: Listing Is Not the Goal—Governance Is
The capital market can be a transformative tool. It can discipline inefficient SOEs, increase public scrutiny, and channel national savings toward productive enterprises. But this only happens when the tool is used wisely.
In their current state, most SOEs in Bangladesh remain unfit for listing. The motivations—whether to deepen the market or to monetize state assets—are understandable but insufficient. Reform must come first.
Governments must recognize that listing is not a quick-fix for fiscal gaps or a band-aid for shallow capital markets. It is a covenant—a promise of accountability, efficiency, and fairness to all shareholders. Unless that promise is fulfilled, the listing of SOEs will continue to be a missed opportunity.
Summary Table: Structural Issues and Required Reforms in SOE Listings
| Problem | Description | Required Reform |
|---|---|---|
| Capital misallocation | Idle cash hoarded and parked in weak banks | Enforce dividend policies; mandate reinvestment or capital return |
| Ignorance of minority rights | Pricing, policy, and decisions exclude minority shareholders | Training on fiduciary duties; stricter BSEC oversight |
| Unfair share issuance | Shares issued to government at below-market prices | Mandatory rights issues or bond issuance instead |
| Cash extraction outside dividends | Government attempts to take surplus cash without dividends | Legally require dividends as the only channel for fund repatriation |
| No pre-listing performance improvements | Poor operational efficiency and accountability | Implement PIPs before listing any SOE |
| Lack of board independence | Government dominates board without independent voices | Mandate independent directors and audit committees |
| No valuation discipline | Arbitrary pricing of capital raising exercises | Pre-commit to transparent capital raising frameworks |
Final Thought
Listing of SOEs in Bangladesh can unlock tremendous value—both for the government and for the capital market. But only if done right. With governance, transparency, and accountability at the forefront, SOEs can go from being un-investable to being national champions. Without these reforms, however, listing more SOEs will do little more than inflate indices on paper—while eroding real trust in the market.