Nasirud Doulah of Doulah & Doulah (www.doulah.net) in Dhaka looks at the country’s acquisitions regime
Rapid growth in M&A numbers has made the Government impose further regulatory control over transactions for the sake of transparency, fairness, stakeholder interest and Government revenue. The Bangladesh M&A regime is described below in concise format:
• Acquisition of shares (transfer of shares and issue of shares): An acquisition of shares could take place either by way of subscription to fresh equity in a company or purchase of existing equity in a company from another shareholder.
• Mergers: Mergers are required to be sanctioned by the High Courts of Bangladesh. Upon clearance of minimum 3/4 of the shareholders, the transferee company may give a 120 days’ notice to acquire the shares of the dissenting shareholders. Unless otherwise applied before the Court within 30 days, the transferee company is entitled to acquire such shares.
• Acquisition of assets: Acquisitions of assets in a company on a going concern basis along with relevant liabilities is allowed in Bangladesh. However, in line with mergers this also requires approval from the High Court of Bangladesh with the same procedural requirements.
• Joint ventures: Where a wholly owned entity is not the preferred option for an investor, a business may be undertaken as a joint venture especially in the sector where 100% foreign investment is not allowed.
• Slump sale and de-merger: These have been covered in the proposed Direct Tax Bill which is yet to be enacted.
• Antitrust Law: As per the Competition Act, 2012 all combinations (M&A) require approval by the Bangladesh Competition Commission (BCC) in line with the upcoming Competition Rules still under drafting phase. Any combination that adversely affects competition or creates a cause to adversely affect competition is prohibited. At the moment BCC is working on a reactive basis on its own accord or from objection from third parties. Relevant statutory and regulatory authorities are able to seek references from the BCC which BCC is required to issue within 60 days.
• Change in control: In case of acquisitions where a company which is controlled by persons resident in Bangladesh ceases to be so controlled, an application has to be made to Bangladesh Bank (BB) for permission. A company is deemed to be controlled by another company if, that other company, by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directors.
• Compulsory conversion and listing: If a company's paid up capital goes beyond BDT400 million ($5 million), it has to convert itself into a public company and if beyond BDT500 million or more then it has to get listed by way of public offering. The Bangladesh Securities & Exchange Commission (BSEC) has recently waived joint ventures and foreign owned companies from this requirement.
• Reporting requirements: Transfer of shares involving non-residents are required to be reported to BB within 14 days.
Transfer pricing regime
• Arm’s length price: All transactions must take place at arm’s length price, the conditions (e.g. price, margin or profit split) of which do not differ from the conditions that would have prevailed in a comparable uncontrolled transactions between independent entities carried out under comparable circumstances. Such price is determined by applying the most appropriate methods among comparable uncontrolled price method, resale price method, cost plus method, profit split method or transactional net margin method provided that such price determined does not result in total income lower than the total income that would have been resulted if the price at which any international transaction has actually been undertaken were taken as the price charged or paid in the said international transaction. In addition, every person who has entered into any international transaction exceeding BDT20 million is required to furnish an additional report from a Chartered Accountant.
• Fair value for repatriation purpose: BB has imposed the method for determination of fair value of unlisted securities adopting the combination of market value approach and discounted cash flow approach along with net asset value approach. Application for repatriation of sale proceeds of shares is required to be submitted to BB with a Valuation Certificate issued by a Merchant banker or a Chartered Accountant.
Listed company considerations
• Substantial acquisition of shares: For any buy order or entering into any transaction resulting in one's holding of voting rights to exceed 10% of the issuer's total voting rights; or when anyone wants to purchase shares corresponding to 10% or more voting rights in the issuer; or once the initial shares corresponding to a 10% voting right in the issuer is achieved, any further acquisition of shares require disclosure of such information to the BSEC, the relevant Stock Exchange, Merchant Bank and issuer, and a public notification in a newspaper within three working days from the date of placement of such an order.
• Bail out takeover: Such an acquisition may be performed by a number of parties in concert to bail out any financially weak company. The parties shall determine the acceptable price, and develop a rehabilitation package taking into consideration the rights of the minority shareholders, expert management, effective rehabilitation and transparency. The price shall be a mutually negotiated subject to approval from one cost accountant, another chartered accountant and BSEC.
• Mandatory takeover: A mandatory offer is required by a person when it is envisaged that due to the acquisition, the shares in the hands of the public amount to 10% or less of the voting rights of an issuer. When a shareholder has reached the mandatory offer threshold percentage, it must make an offer to acquire all the remaining voting shares. Such an offer must be in cash or where securities are being offered, the offer must also include a cash alternative.
Special provisions for financial institutions
The regulator, BB has imposed a specific approval route for the acquisition of bank companies and financial institutions under the Guidelines for Merger/Amalgamation of Banks/Financial Institutions.
Doulah & Doulah
About the author
Mr Doulah is a partner at a leading Dhaka based law firm Doulah & Doulah (www.doulah.net). Mr. Doulah is a leading personality for corporate and finance law matters in Bangladesh. He has been working as a corporate and financial law specialist for the last ten years. He is not only reputed in the context of Bangladesh but also holds a strong reputation internationally among overseas clients and law firms. Mr Doulah is also one of few local capital market legal experts.
Mr. Doulah represents a handful number of major MNCs, financial institutions and institutional investors in Bangladesh. M&A and project finance are his stressed areas and in this connection he has advised in a number of global transactions. He is also a lease finance expert and local consultant to major aviation and lease finance corporations of the world.
He is a consultant to World Bank on the local corporate governance infrastructure. In 2008 under instructions of World Bank he worked under a project team to compare local corporate governance standards and practices with its OECD counterparts which was later released as a corporate governance assessment report by World Bank. His recent clients in project finance transactions include GE Capital, IFC, ICICI, Export Canada, AES, GSK, ABB, Abener and Liberty. Recent M&A clients include Microsoft, CSAV, Mitsubishi, AES and GlaxoSmithKline.
Mr Doulah is a member of the Thomas Jefferson School of Law Foreign Tax and Trade Research team and the contributing author of a number of publications and articles.