Pragati Life’s share traded at higher price on DSE despite rights issuance

Stock prices of Pragati Life Insurance were not adjusted on the trading board of Dhaka Stock Exchange (DSE) yesterday despite issuance of right shares, causing the securities to change hands at a higher price.

When a company issues new shares through bonus shares or rights shares, the price has to be mandatorily revised downwards to reflect the availability of a higher number of shares so that the total market value remains the same.

The stock of Pragati Life traded at Tk 113.7 on the DSE board while it was Tk 97.3 on Chittagong Stock Exchange. The port city bourse adjusted the price based on the floor price.

The "A" category life insurer got approval from the Bangladesh Securities and Exchange Commission (BSEC) to issue the right shares.

It raised Tk 23 crore by issuing the shares at a premium of Tk 5 to strengthen the capital base. It issued one right share for every shareholder.

The record date for the issuance of the rights shares was September 7 or Monday so it was obvious that the new stock price would be adjusted on the following trading day, meaning yesterday.

The record date is the last date when shareholders are eligible to receive a dividend or right shares.

"As the share price is not allowed to go down below the floor price, we did not adjust the price," said a top official of the DSE, preferring anonymity.

The stock market regulator set the floor price of all stocks in March to stop the freefall amid the coronavirus pandemic.

Pragati Life's floor price was Tk 88.3, so its adjusted price should have been Tk 70.65. The closing price before the record date was Tk 126.3.

DSE Managing Director Kazi Sanaul Hoq did not receive phone calls.

"How has the DSE allowed the trading of the stock at the previous price?" asked a top official of the BSEC. "We are going to ask the bourse," he added.

Pragati Life's shares were down 9.98 per cent on the DSE yesterday. It was up 0.3 per cent on the CSE.