The Royal Securities Exchange of Bhutan Limited (RSEBL), the country’s stock exchange might shrink further with five of the 21 listed companies facing the threat of delisting.

While the fate of the three listed mining companies remain uncertain after their lease period expired, the RSEBL, on May 1, suspended share trading of the two oldest companies, Bhutan Carbide and Chemicals Limited (BCCL) and Bhutan Ferro Alloys Limited (BFAL).

BCCL and BFAL failed to comply with the listing rules. RSEBL, as per the rules governing the official listing of securities, can any time suspend dealings in any securities or cancel the listing of any securities if a company fails to comply with the listing rules and if 25 percent of the company’s paid-up capital are not in public hands.

The CEO of RSEBL, Dorji Phuntsho said that the stock exchange had no choice but to suspend trading because the two companies had non-compliance issues. “While it is in the RSEBL’s interest to encourage more listing, it is also answerable to statutory bodies like the audit,” he said.

An official from the exchange said that the companies are given four months to come up with a solution. A final reminder was sent a day prior to suspension of trading. If nothing comes up in six months’ time, he said, the two companies would be delisted either voluntarily or compulsorily.

The two companies were established even before the institution of stock exchange and the government divested shares to encourage public participation.


Share holdings 

Although the listing rules mandated 25 percent public shareholding, the same rule also permits listing as a coated company, meaning that a company is allowed to list with 15 percent minimum public shareholding initially, provided that the company increase this to 20 percent in the third year and 25 percent in the fifth year of listing.

Financial institutions own about 39 percent of BCCL’s shares, institutional investors own 29 percent and 25 percent by major shareholders. Dratshang Lhentshog owns less than one percent and general public owns a little over 5 percent of the BCCL shares.

As for BFAL, the Druk Holding and Investment (DHI) owns about 26 percent, institutional investors own about 40 percent and 12 percent is owned by foreign investors. The remaining shares are owned by financial institutions (8 percent), major investors (11 percent) and general public (0.20 percent).

On the delisting, an official said that the company could either buyback the shares or shareholders can exist as private shareholders.

“I hope the shareholder’s wisdom would prevail and the management would consider both pros and cons before arriving at a conclusion,” the CEO said.

However, Kuensel sources said that the substantial shareholders would not want to dilute their shareholding and in absence of any incentive, listed companies and private companies are treated the same.

The BCCL and BFAL stocks, according to trading history, are among the top performing stocks with market price hitting Nu 73.5 and Nu 60 per share before suspension.


The mining companies

After the end of the 15-year mining lease on December 31, last year, the RSEB had to suspend the trading of Druk Satair Corporation Limited (DSCL) shares in the secondary market beginning January this year until further notice.

The company then initiated a buyback of 25 percent of the total paid up capital from its shareholders at Nu 80 a share, against the market price of Nu 34, beginning this month.

Similarly the lease period of Jigme Mining Corporation Ltd. ended and it has initiated a buy-back of its shares at Nu 200 a share against the market price of Nu 78. The company has also declared 500 percent dividend for 2018.

The State Mining Corporation Limited (SMCL) has taken over the two mines. The lease of Eastern Bhutan Coal Company Limited is also coming to an end in few months time.

The Prime Minister Dr Lotay Tshering earlier told Kuensel that the government would renew the lease, if the country’s mineral deposits were exploited efficiently. “But there will be a major change in dos and don’ts,” he said.  “As long as minerals are exploited sustainably, efficiently and responsibly, it doesn’t matter whether DHI operates the mines or a state owned enterprise or even a private entity,” he said.

Albeit the issue, securities of these mining companies have huge demand in the secondary market, mainly because of the dividend which is as high as 500 percent. Consequently, the market prices of shares of these companies are higher than any other listed company.

The missing Link

“We are prepared to absorb more listing and trading,” said CEO Dorji Phuntsho. On the technology front, an online trading platform is up and running. Required legislations, he said are already in place. In fact, the stock exchange recorded increasing number of players with the launch of mobile app, M-CaMs. “Everyday, at least six people come for registration,” Dorji Phuntsho said.

“We are now patiently waiting for more listing,” he said. So far, application of one private company is under process.

If the private sector is the engine of growth, the capital market is the locomotive for the private sector. However, big players in the private sector do not find any incentive to list their companies. This, a businessman based in Thimphu said should alert policymakers to come up with policies instead of being defensive whenever suggestions to divest the shares of SOEs are put up.

Companies Act obliges a listed company, to incorporate under the companies Act. A listed company is subject to compliance with regulations including governance standard, statutory audit and accounting standards. This brings about transparency.

A listed company enjoys trust among its stakeholders and business partners and a listed company can also avail loan against its securities easily.

From the revenue perspective, of the total tax revenue for FY 2017-18 amounting to Nu 27B, corporate income tax contributed more than Nu 9B and business income tax contributed Nu 1.49B. In 2017 alone, 19 listed companies paid a CIT of Nu 1.26B almost equal to tax paid by 31,551 BIT payers. There is also an opportunity to curb revenue leakage by encouraging more businesses to list.

From the employment perspective, employees of listed companies enjoy more credibility and security. While unemployed youth are not attracted to the private sector, listed companies, despite promoters owing a majority of shares, attract talent, skills and qualified people.

However, in the last four years, no new listing took place.


Between 2015 and 2018, the total market capitalisation has increased from Nu 24B to Nu 35B. As of yesterday, the market capitalization was recorded at Nu 45B, one of the highest in the history of stock exchange.

Market capitalisation is determined by multiplying total number of shares by the prevailing market price. It represents the worth of the 21 list companies. This means either the number of shares or the market price has to increase.

However, in absence of any new listing, the number of shares in the market hardly increased. This means that Market capitalisation, in Bhutan’s capital market, currently, is primarily driven by an upsurge in market price fueled by growing demand and short supply.

Should more companies be delisted, one immediate impact could be a decrease in market capitalization. But if new listings are not facilitated, the demand in the secondary market could skyrocket.

This would exacerbate the already occurring artificial valuation of stocks of some companies. For instance, share prices of some companies increase by 200 percent in two years.

On the flip side, growth in net asset and earnings per shares of the same companies are meager. This could deceive investors, mainly the general public who are latecomers to the capital market.

The dividend offered might not be worth the investment these investors made to buy shares from the secondary market. On the other hand, early investors who bought shares when share prices were slashed by 10 folds could easily earn more than what the amount would have fetched if kept in a fixed deposit.

Tshering Dorji