Regional powerhouses India and China have locked horns over 25% ownership of Bangladesh’s largest stock exchange. The indications are that China has won what local observers are calling “an unwanted battle” for Bangladesh.

Those commentators see India and China as protagonists engaged in a tussle for regional domination. They say Bangladesh has been backed into a corner and told to choose between what has long been its most important neighbor (India) and its largest trading partner (China).

The Dhaka Stock Exchange (DSE) — South Asia’s third-largest bourse — put up a 25% stake for tender as part of its demutualization, with outside ownership being invited to help improve transparency and accountability.

The DSE always intended to opt for the highest bidder — in this case a Chinese consortium led by the Shanghai Stock Exchange (SSE). However, the  Bangladesh Securities and Exchange Commission (BSEC) apparently wished the bourse to accept a lower bid from a consortium led by India’s National Stock Exchange (NSE).

On Monday (February 19), the DSE stood firm: its board announced it would be sticking with the Chinese consortium. Dr Abul Hashem, Chairman of the DSE, told Asia Times that the board had “finalized and approved minutes of the previous board meeting, which unanimously voted for the Chinese consortium.”

Hashem said the board would send an official proposal to the BSEC for approval within a day or two. When pressed by Asia Times, BSEC spokesperson Saifur Rahman gave no immediate reaction, saying he would do so after he had received the DSE’s proposal.

Meanwhile, market insiders said the regulator was unlikely to meddle with decision further as it had already drawn criticism from various quarters over its alleged pressure on the DSE to pick the Indian bidder.

On January 16, Transparency International Bangladesh (TIB) raised concern on January 16, saying in a statement: “The selection of the second-highest bidder instead of the highest one, without showing any valid reason, would trigger questions both at home and abroad.”

Chinese consortium chosen. Why?

Speaking to Asia Times, Jahirul Islam, a member of the DSE board, said the Chinese consortium was “unanimously selected by all the DSE board members” after they had gone through all the bidding proposals. The Chinese company was a “clear winner” in the tendering process, he added.

The DSE’s demutualization scheme consists of 180,37,76,500 shares worth a total US$218 million in paid-up capital, given a face value of 12 cents per share. Shares in the benchmark DSEX index have risen roughly 8% in the past 12 months.

It is understood that the Chinese consortium, comprising the Shanghai Stock Exchange and the Shenzhen Stock Exchange (SZSE), submitted a bid of US$119 million, for 450.9 million shares – meaning they are prepared to pay 30 cents per share.

The Indian consortium, comprising the NSE, the USA’s Nasdaq and Frontier Bangladesh meanwhile quoted 18 cents per share, amounting to a bid of US$87 million for the 25% stake, significantly less than the Chinese offering.

“The selection of the second-highest bidder instead of the highest one, without showing any valid reason, would trigger questions both at home and abroad”

The Chinese consortium also offered free technical support (worth around US$36 million) for 10 years. The Indian consortium made no clear-cut proposal of any technical support. It also demanded two director positions on the DSE board. The demutualization rules allow only one board position for the “foreign entity” that owns the 25% stake.

DSE board member Shakil Rizvi told Asia Times the Chinese consortium wanted to be a long-term strategic partner without imposing any conditions, whereas the Indian consortium had imposed the condition of recouping its investment after five years.

Furthermore, Rizvi said the Chinese consortium had already garnered the necessary approvals from all of the relevant local regulators in China to go ahead with the partnership, whereas the Indian consortium hadn’t obtained the necessary approval from the Securities and Exchange Board of India and the Reserve Bank of India.

Vikram Limaye, the NSE’s Chief Executive Officer (CEO), visited Dhaka on February 11 on a two-day trip and had meetings with several senior government and BSEC figures. Limaye also had a meeting with KM Mazedur Rahman, the Managing Director of the DSE – a meeting, Asia Times has learned from various sources – that didn’t end on a good note.

A source inside BSEC told Asia Times the Indian consortium had offered to match the Chinese consortium’s offer. When asked, BSEC spokesperson Saifur Rahman declined to comment on that claim.

A regional battle

Analysts of regional affairs believe India’s “apparently desperate” attempt to sway the DSE’s choice reflects New Delhi’s anxieties about losing influence to Beijing.

China has already overtaken India to become Bangladesh’s largest trading partner. In the fiscal year 2016-17, trade between Beijing and Dhaka stood at US$11 billion, albeit imports from China accounted for US$10.1 billion of that. In the same period, bilateral trade with India stood at only US$6.8 billion, with imports from India accounting US$6.16 billion.

On Chinese President Xi Jinping’s visit to Dhaka in October 2016, Bangladesh was pledged a loan of US$25 billion — it’s largest ever — from China to implement some 35 projects. China is also the biggest potential investor in capital-poor Bangladesh.

In response to that Chinese offer, and following a visit to India by Bangladeshi Premier Sheikh Hasina, in April last year, India extended its total line of credit to the country to US$8 billion.

Dr Imtiaz Ahmed, a professor of International Relations at Dhaka University, told Asia Times China has been giving large loans to various South Asian countries to exert regional influence. Pakistan, Sri Lanka, Maldives and Nepal all are receiving huge loans from China.

“It’s hard for India to match the Chinese offer financially but Delhi helped the incumbent Bangladesh government gain legitimacy in the international arena after the [controversial] election in 2014,” said Ahmed, “So naturally, the government doesn’t want to put itself in a position where it would need to aggrieve India in any way.”

The storm surrounding the DSE’s demutualization appears to do just that, Dr Ahmed added.