Walton Hi-Tech Industries, Investment Corporation of Bangladesh and Berger Paints Bangladesh shares were in a free fall on Monday as investors feared that the upcoming supply of shares from the sponsors will further bring down the price.
The Bangladesh Securities and Exchange Commission (BSEC) on Sunday ordered the three large-cap firms to make sure that their sponsors offload further shares in the secondary market to increase the free-floating shares at least up to 10% of the total shares.
Based on the current market price, the market will have to spend over Tk5,000 crore to absorb the supplies of existing sponsor-director's shares over the next one year.
Walton shares dropped to the bottom of the day's circuit breaker at Tk1,347.9, losing 6.2% at the opening and the trading screen was only displaying sell orders, some of which were absorbed by interested buyers without any bidding as the price cannot go any lower in the same session.
Stocks which are stuck at the bottom of the circuit breaker—the allowable limit for fall in a day—generally tend to continue to fall in the following session.
Sellers did not allow Walton shares to go up even for a second on Monday.
The situation was little better for ICB and Berger shares as they had some trades above the bottom circuit breaker, but ultimately free fall was there too.
Berger closed 6.1% down to Tk1,803.1 while ICB closed 8.7% lower at Tk129.7.
According to the most recently amended public issue rules, a company must give at least 10% of its shares in the hand of external investors to ensure a minimum free-floating of shares which is important for a balance between the demand and supply of securities in the market.
Free-floating shares are the shares held by external investors who do not need prior declaration to buy-sell stocks.
As directed by the BSEC, Walton sponsor-directors will have to sell 9.03% more of the company shares in the secondary market within a year, which is 6.81% in the case of ICB and 5% for Berger Paints Bangladesh.
To prevent sudden oversupply, BSEC asked them not to offload more than 1% of the company shares in a month.
The extremely low free-floating was possible during the companies' listing as 10% minimum free-floating was not a criteria then, even in the last year when Walton entered the market with less than 1% float.
However, better late than never.
Shareholders, stockbrokers and merchant bankers expressed their dissatisfaction regarding the upcoming supply and the instant market reaction too reflected that.
A merchant bank CEO said, seeking anonymity, the regulator made mistakes allowing the companies to enter the market with such low free-floats earlier and now even intensified it through impacting the stock price which is hurting shareholders.
BSEC could instruct for off-market transactions instead of fuelling the secondary market supply.