SECTION1: Market overview
1.1 What have been the key trends in the M&A market in
your jurisdiction over the past 12 months and what have been
the most active sectors?
The practice of mergers and acquisitions may be considered
at a nascent stage in Bangladesh. The rationality of this
position is the mindset of traditional business people in
Bangladesh, who consider it taboo to sell a business, even if
it is the best thing to do. Moreover, the lack of clear
regulatory guidelines is one of the major impediments to
M&A activities. The current regime is governed by the
established practice adopted from transactions completed in
Nonetheless, we have noticed few large deals in Bangladesh
in recent times and also found an environment ripe for bank
mergers. As per a survey report, given the high number of banks
compared to the size of the economy, 72% of bankers are in
favour of reducing the number of banks in Bangladesh through
merger or acquisition.
Recently, a number of M&A and joint-venture deals in the
telecommunication, energy, FMCG, and food sectors have been
initiated. These transactions over the past 12 months were
intra-group mergers having common or related sponsor
1.2 What M&A deal flow has your market experienced and
how does this compare to previous years?
During 2017, no remarkable merger process has been
completed, however, the acquisition of 100% of the ownership of
Holcim Cement (Bangladesh) by LafargeHolcim Bangladesh for
$62.5 million attracted the attention of the interested
parties/stakeholders. Apart from that acquisition, many private
M&A deals may have taken place, however, as those M&A
transactions took place outside of the public domain, there is
no publicly available data.
1.3 Is your market driven by private or public M&A
transactions, or both? What are the dynamics between the
The market is predominantly driven by private M&A
transactions, and public M&A activities are very limited in
practice. M&A transactions in private (but unrelated)
companies are dictated by acquisitions as opposed to mergers.
Various cross-border acquisitions in the telecommunication,
energy and banking sectors during the first decade of 21st
century, such as acquisitions of Aktel by Axiata, Warid Telecom
by Airtel, Sheba Telecom by Orascom Telecom and Oriental Bank
by ICB Financial Group, are testament to this. On the other
hand, restructuring between intra-group entities (regardless of
their private or public status) usually takes place by way of
In the case of private mergers, required permission from
Government agencies is limited in condition, whereas, for
public M&A transaction, the Bangladesh Securities and
Exchange (Substantial Acquisition and Takeover) Rules, 2002
(2002 Rules) comes into play and caters for situations where
any person is interested in acquiring 10% or more shares of a
publicly listed company. However, the 2002 Rules are regarded
as inadequate for the modern dynamics of capital markets.
Hence, as of now, companies usually seek and obtain exemption
from Bangladesh Securities and Exchange Commission from
compliance with the provisions of 2002 Rules.
1.4 Describe the relative influence of strategic and
financial investors on the M&A environment in your
Bangladesh is observing intra-group merger transaction in
the form of private M&A. Therefore, the culture of
strategic and financial investors on the M&A environment
has not been developed yet.
SECTION 2: M&A structures
2.1 Please review some recent notable M&A transactions
in your market and outline any interesting aspects in their
structures and what they mean for the market.
Following the merger of Lafarge Group and Holcim Group, the
corporate market observed a restructuring in shareholding of
Holcim Cement (Bangladesh). To give effect of that merger,
LafargeHolcim Bangladesh, one of the largest multinational
cement manufacturers listed with local stock exchanges, was
willing to acquire 88,244 share in the target company. As part
of the acquisition process, due diligence was conducted on the
company. Upon taking into consideration of the value of shares,
Lafarge Surma Cement executed the share transfer agreement for
purchasing the shares from Holderfine B.V for $117 million, and
accordingly sought the central bank's approval to remit $117
million to Holderfine B.V.
In demonstration of its willingness to regulate, Bangladesh
Bank approved the share transfer for the merger but said that
the share is overpriced and asked Lafarge Surma to submit
documents related to share valuation of Holcim Cement. Upon
taking into consideration of necessary documents, the central
Bank approved repatriation of $62.5 million only. After waiting
for three months, Lafarge Surma and Holderfine B.V agreed to
close the deal as per instruction of the central bank.
2.2 What have been the most significant trends or factors
impacting deal structures?
As the market is still developing, strategic investments
rarely take place in Bangladesh. With the exceptions of a few
acquisition deals, the market is primarily dominated by
intra-group mergers. While most of these mergers occur to boost
profitability, in many cases, the profits of the entities
involved decline, and historically, achieving tax neutral
reorganisation has been the primary goal for mergers.
If a company is acquired by way of share purchase, the said
transaction will attract stamp-duty of 1.5%, as well as capital
gains taxes from the seller; by the same token, if there is a
transfer of immovable property, the transaction will attract a
hefty amount 8-11% of the transaction value, on account of
stamp duties, registration charges, capital gain tax and
advance income taxes. By contrast, any transfer of shares and
assets as a result of a merger is deemed to be effective by
operation of law, alleviating any need to pay of taxes and
stamp duties on such transactions.
Furthermore, in the absence of any provision in the Income
Tax Ordinance, 1984, regulating carry forward of losses in the
event of amalgamation, presumably, the accumulated loss of the
transferor company will be deemed to be the loss of the
transferee company. Consequently, the transferee company would
be entitled to carry forward such loss, and set off such
amounts against its future profits, reducing tax liabilities of
the transferee companies.
SECTION 3: Legislation and policy changes
3.1 Describe the key legislation and regulatory bodies that
govern M&A activity in your jurisdiction.
The Companies Act 1994 contains the broad conditions for a
transfer of shares in an acquisition/takeover transaction.
Moreover, where a merger is under consideration, one has to
resort to sections 228 and 229 of the legislation, which lay
down guidelines for concluding arrangements with shareholders
as well as the power of the High Court Division to sanction a
scheme of arrangement/amalgamation.
The Bangladesh Securities and Exchange Commission (BSEC)
(Substantial Acquisition of Shares and Takeovers) Rules, 2002,
has been promulgated by the capital markets regulator of
Bangladesh to regulate public takeover/acquisition
As anti-takeover defense, section 15 of the Competition Act,
2012 prohibits direct or indirect execution of any takeover by
any person that would have detrimental effects on competition
or create monopoly or oligopoly in the market. However, this
Act empowers the Competition Commission to deal with complaints
under the Act, which has been formed, but yet to be fully
Section 18 of the Foreign Exchange Regulations Act 1947
mandates that permission be obtained from Bangladesh Bank for
any act whereby a company, which is controlled by persons
resident in Bangladesh, ceases to be so
In addition to the above, sector specific laws, rules and
regulations, guidelines, and policy decisions may also be
applicable. For example, M&A deals in the telecommunication
sector will be subject to provisions of Bangladesh
Telecommunication Act, 2001, Telegraph Act, 1885 etc.
Key regulatory bodies
The BSEC is the key regulatory body for M&A
transactions. However, there is no explicit requirement to
consult or seek permission from the BSEC for undertaking an
M&A transaction unless the proposed transaction results in
its paid up capital being BDT100 million ($1.25 million) or
more (a requirement triggered by the rules regulating issue of
capital, as opposed to M&A). Moreover, as far as public
takeovers are concerned, it is worth noting that in the present
environment of non-enforcement of 2002 Rules, the BSEC has
limited scope in scrutinising such transactions.
Besides the BSEC, depending on the sector in which the
proposed M&A deal is to take place, particular regulators,
for instance the Bangladesh Telecommunication Regulatory
Commission (BTRC), Bangladesh Power Development Board (BPDB),
Bangladesh Bank (BB) and Insurance Development & Regulatory
Authority Bangladesh (IDRA), may take up the role of regulating
3.2 Have there been any recent changes to regulations or
regulators that may impact M&A transactions or activity and
what impact do you expect them to have?
In the last 12 months no such changes in regulation and/or a
regulator have been made that may impact in M&A
transactions or activity in Bangladesh.
3.3 Are there any rules, legislation or policy frameworks
under discussion that may impact M&A in your jurisdiction
in the near future?
Considering the limitations and inadequacies of existing
regulatory frameworks, the BSEC, the key regulatory authority
for capital markets, formed a committee in 2016 to revise the
existing rules and formulate new rules for regulating M&A
activity in Bangladesh. It is expected that if the BSEC issues
its guidelines, M&A transactions will have to comply with
certain new rules and it will make the process more
transparent, formal and systematic.
SECTION 4: Market idiosyncrasies
4.1 Please describe any common mistakes or misconceptions
that exist about the M&A market in your jurisdiction.
Corporate culture is relatively new in Bangladesh and
traditionally many of the large businesses are proprietorship
or family businesses. In the existing conservative corporate
scenario, selling/dissolution of a business is considered a
taboo by many established entrepreneurs. Tax neutral
reorganisations, let alone strategic mergers, are often
overlooked as a viable option for achieving better growth. In
the absence of a clear regulatory framework, the practice of
M&A is viewed as cumbersome by many.
4.2 Are there frequently asked questions or often
overlooked areas from parties involved in an M&A
Valuation: In the absence of any regulatory guideline as to
the methods and basis of valuation to be adopted during M&A
activities, companies, particularly in intra-group mergers, may
opt for methodology yielding higher valuation. As a result,
propriety of valuation bears the possibility of becoming a
highly contested issue before the court in considering an
application for approval of a scheme of amalgamation.
Financial statements: During the planning stage, some
companies may overlook financial statements. Consequently,
where cash pay-out is involved, there might arise
irreconcilability between the amounts available on the balance
sheet and the amount agreed to be paid against the shares,
creating a gridlock during the post-sanction and post-closing
Regulatory compliance: Due to underdeveloped corporate
cultures, many companies fail to secure annual regulatory
compliances. As a result, the proposed M&A may end up being
a far more time-consuming activity than initially foreseen.
Disclosure to public shareholders: In the absence of any
regulatory provisions imposing strict disclosure requirements,
listed companies' disclosure is limited to the publication of
price sensitive information, which does not mandate giving
details to the public of the effects of a proposed M&A
transaction or how the interests of sponsors are affected
consequent to a merger.
Interests of employees: Though mergers may involve
redundancies of employees, the interests of employees are often
overlooked during the planning stage so that companies involved
do not take enough precautions, such as preparing voluntary
retirement schemes or other compensatory schemes before
presenting the proposal for sanction before the Hon'ble High
4.3 What measures should be taken to best prepare for your
Setting up a clear regulatory framework should be the first
step towards addressing the misconceptions about M&A in
Bangladesh. In addition to this, creating awareness about the
importance of regulatory compliance, transparent financial
reporting and tax structures, as well as improving the overall
business cultures, would go a long way towards busting various
myths surrounding M&A activities in Bangladesh.
SECTION 5(a): Public M&A
5.1 What are the key factors involved in obtaining control
of a public company in your jurisdiction?
Takeovers of public companies are very limited in practice.
A number of notable takeover transactions, during the first
decade of 2000, were undertaken to revive a sick company or to
enter the stock market. However, during the twenty first
century, there had been several intra-group horizontal mergers
between listed companies seeking operational efficiency and
5.2 What conditions are usually attached to a public
Since public offers have hardly been made (see Question 5.1)
it is not possible to answer this.
5.3 What are the current trends/market standards for break
fees in public M&A in your jurisdiction?
The practice of break fees is absent in
SECTION 5(b): Private M&A
5.4 What are the current trends with regard to
consideration mechanisms including the use of locked box
mechanisms, completion accounts, earn-outs and escrow?
These mechanisms are not practiced in
5.5 What conditions are usually attached to a private
Any private take-over offer would usually be associated with
the following conditions:
- obtaining of approvals from relevant
regulatory authorities, where applicable;
- obtaining No Objection Certificates from
the lending banks;
- obtaining the latest tax clearance
- rectifying any regulatory defects revealed
during the due diligence process, including renewal of
licenses and approvals.
5.6 Is it common practice to provide for a foreign
governing law and/or jurisdiction in private M&A share
This is not a common phenomenon in Bangladesh. Since in
acquisition transactions share transfer registrations are to be
regulated by local law, it is usual to stipulate Bangladesh law
as the governing law of the share purchase agreements.
5.7 How common is warranty and indemnity insurance on
private M&A transactions?
There is no such practice of warranty and indemnity
insurance in Bangladesh.
5.8 Discuss the exit environment in your jurisdiction,
including the market for IPOs, trade sales and sales to
In Bangladesh, both selling shares through the capital
markets and trading shares are very common in nature for
closing the investment in a company. However, the most common
exit route is to sell shares through the capital markets, as it
creates the opportunity to remit the sale proceeds without
observing the permission requirement of the central bank.
Financial sponsors are entitled to acquire shares of a
company if the company has failed to perform its obligation in
compliance with the financial documentations. However, in
reality such power has not been exercised yet.
SECTION 6: Outlook 2018
6.1 What are your predictions for the next 12 months in the
M&A market and how do you expect legal practice to
As the economy is growing, it is likely that many companies
will seek mergers to achieve inorganic growth by downsizing
costs. Prospective sectors for mergers are banks, financial
institutions, pharmaceuticals, healthcare, real estate,
textiles, cement, steel, power and telecommunication. In the
next 12 months, consolidation in the banking sector by way of
mergers is highly probable. It is expected that globalisation
and the adaptation of strategic corporate cultures will make
the new generation of entrepreneurs open to strategic
investments through M&A.
Currently, the BSEC is working on a draft regulation for
M&A. It is hoped that the proposed regulation, when
published, will fill in the legislative vacuum and shall set
objective standards against which a proposed M&A
transaction can be evaluated. Furthermore, it is expected that
the regulation will alleviate many misconceptions surrounding
M&A in Bangladesh and bring transparency in the regulatory
process so as to create an environment more conducive to
Principal associate, A S &
T: +88 02 9561540
F: +88 02 9561476
Dewan Faisal, an advocate of the Supreme Court of
Bangladesh and one of the principal associates of the A
S & Associates, is an expert in M&A and
restructuring with a special focus on foreign
investment and foreign exchange. Currently, Faisal is
involved in several cross-border acquisition deals
where target companies come from wide-range of business
areas, such as investment banks, a power supplier and
hotel management etc.
Faisal played a pivotal role in the acquisition of
Kite Bangladesh Limited. This included advising on the
applicability of capital gains tax and challenges
related to applicable double taxation avoidance
treaties and legal provisions. He is currently engaged
in the takeover of a four-star hotel, located in Dhaka,
Bangladesh, by way of an acquisition. He is also
leading an intra-group merger of a group of companies
in the RMG sector, which has six local companies and a
company domiciled in the US. Faisal has assisted in
structuring an investment bank domiciled in Bangladesh,
which involved the acquisition of shares by an
investment bank of Sri Lanka. He also assisted on the
acquisition of shares of a joint-venture between a
local company and a South Africa-based subsidiary of a
group of companies, whereby the shares of the local
partner will be acquired by another subsidiary of the
same group, based in the UK.