Explained: How China plans to grow Asia clout by beating India bid in Dhaka

Both India and China have been lobbying to push their respective exchanges' bids to acquire a 25% stake in the Dhaka Stock Exchange (DSE), and this has turned into a full-blown diplomatic row

The 25 per cent share sale of Dhaka Stock Exchange (DSE), Bangladesh’s largest stock exchange, has triggered a diplomatic row between India and China, with exchanges from both the countries trying to lobby for their country’s exchanges to buy the stake. 

The Indian government is trying to lobby with the regulator in Bangladesh to push the DSE to accept a bid placed by a consortium led by the National Stock Exchange (NSE), even though a consortium of Chinese stock exchanges offered to pay about 45 per cent more.

A consortium of the Shanghai and Shenzhen Stock Exchange has placed a bid to buy the stake in DSE at 22 taka (Rs 17.12) a share, valuing the purchase at $117 million. The NSE consortium offered only 15 taka (Rs 11.67) a share. 

The DSE is believed to have accepted the offer by China’s exchanges. However, the deal would require an approval of the Bangladesh Securities and Exchange Commission (BSEC).

Besides valuing the exchange at $470 million, the Chinese bidders have also offered technical assistance worth another $37 million, according to reports. The NSE consortium has reportedly offered technical assistance but not put a value to it. 

India is trying to thwart Beijing's bid to avoid China's domination in the region.

Vikram Limaye, managing director and chief executive officer of the NSE, had reportedly flown to the neighbouring country to lobby with the BSEC.
 

The consortium that buys the 25 per cent stake will get a board seat on the DSE and will be able to influence the exchange in decision-making. 
 

Earlier, Chinese consortiums have bought stakes in exchanges in Pakistan, Nepal and Myanmar. Chinese dominance in these countries is becoming a cause of concern for New Delhi.

The NSE failed to show whether it had received approvals from the Securities and Exchange Board of India and the Reserve Bank of India, the Dhaka Tribune wrote, quoting a source at the DSE.

Indian authorities are hopeful that the Bangladesh government will accept their request, given the strong ties between the two countries.

“The process is still on and we’re hopeful. India and Bangladesh have a strong relationship. We hope that it will help us contribute to the development of markets,” Limaye told Bloomberg on Friday. “We are well positioned to help grow the Bangladesh market and the exchange, given our experience and track record.”

“We are waiting for the recommendation of the DSE, then we will decide,” Saifur Rahman, a spokesman for the BSEC was quoted as saying in a report in the Financial Times. “We need to decide in the interests of the current shareholders, but also in the interests of the country as a whole.” 

The report also quoted Shakil Rizvi, a director at the DSE, as saying: “The board has accepted the Chinese bid because it is higher. Now it has to go for final approval by the BSEC. If they want to approve it, they can. But they do not have to.”

DSE’s move to sell a quarter of its stake is part of an attempt to modernise its capital market, amid an encouraging seven per cent growth in its economy. The exchange is keen on getting a foreign partner. Just like the BSE before demutualisation, the DSE is currently owned by small local brokers.