Bangladesh’s capital market, third-largest in South Asia, turns out to be the latest turf in the strategic rivalry between China and India. Bourses from both countries are bidding for a 25% share of the Dhaka Stock Exchange, which is courting foreign investment as part of its demutualization process. While the DSE board initially approved the Chinese proposal, the country’s financial regulatory commission appears to be in favor of India’s bid, making it yet another power play between the two Asian giants.
Earlier in 2013, Bangladeshi authorities approved the demutualization of the country’s largest stock exchange. When a stock exchange is demutualized, it normally turns into a for-profit entity from a nonprofit one. Also, one of the main objectives of the demutualization is to separate the ownership from management.
The DSE’s demutualization plan included selling of one-fourth of its stakes to strategic partners, mainly foreign entities, in a bid to receive their technical and technological support to further modernize the exchange. Therefore, it comes as no surprise that the DSE board eyes profiting from the collaboration with the Shanghai-based consortium.
What’s in the offers?
China’s Shanghai and Shenzhen Stock Exchanges, the world’s fifth and eighth largest respectively, made a joint bid for the DSE stake. According to reports by local media, the Chinese offer included the purchase of shares for Bangladeshi Taka (BDT) 22 each ($0.22) along with a $37 million investment in technical assistance. The Chinese party also sought one seat on the DSE board. To make their offer more appealing, they said they would not seek profit on their investments in the first ten years.
In contrast, the National Stock Exchange (NSE) of India offered to buy each share for BDT 15 ($0.18), which is 47% lower than the Chinese offer when aggregated. While the NSE made a promise to invest in DSE’s overall modernization process, it did not make its offer public. Also, the NSE asked for two board seats, which they would leave after five years.
Indian Lobbying
While China’s offers clearly outbid what their Indian rival brings to the table, India does not want to give up without a fight. On Sunday, Vikram Limaye, the CEO of the NSE, flew into Dhaka in an attempt to woo the Bangladeshi authorities. He sat down with delegates from both the DSE and Bangladesh Security Exchange Commission (BSEC). Limaye made his case by emphasizing that NSE is more experienced in “stock exchange development.” Although one Bangladeshi media outlet reported that Limaye’s meetings were not entirely fruitful, the commission instructed the exchange to revisit the tender process soon after Limaye’s visit.
The commission’s move has surprised many, eliciting criticism from concerned parties. Social media has portrayed it as an attempt to not upset Delhi, which has appeared as the biggest political backer of Bangladesh’s Sheikh Hasina government. However, the bilateral relationship between China and Bangladesh has also been on the upswing. Chinese President Xi Jinping visited Bangladesh in 2016 and sealed numerous deals worth almost $15 billion.
Neither the BSEC nor the DSE will be making the final call without consulting with the government first, given the involvement of foreign investors. As of now, no one from the Bangladeshi cabinet has commented on this issue except for the BSEC chairman, who later said that he didn’t have any problem with the Chinese consortium being awarded the tender. He also added that it would be better to have both investors at the DSE’s side. Considering how the ensuing events have unfolded, both Beijing and Delhi will be watching closely which route their Bangladeshi counterparts decide to take.
