Need for scrutinising IPO proposals thoroughly  

Published: May 26, 2019 21:58:59 | Updated: May 28, 2019 21:05:36

The questions raised about the quality of the financials that one Coppertech Industries submitted with its IPO proposal and the company's request for listing on the Dhaka Stock Exchange (DSE) have again given rise to a few questions about scrutiny of public issue proposals. The company has recently collected Tk.200 million through an IPO (initial public offering). The DSE, according to media reports, has decided to seek opinion of the securities regulator on the Coppertech's listing request as it has found evidence of irregularities in the financials of the company.

The Financial Reporting Council (FRC), too, is reportedly awaiting opinion of the ICAB (Institute of Chartered Accountants of Bangladesh) on the financials in question. Following media reports about irregularities indulged in the preparation of financials submitted with the Coopertech's IPO proposal, the FRC sought opinion of the ICAB, the apex professional entity of the auditors. But the auditor concerned, allegedly, under various pretexts, is not cooperating with the ICAB in this matter. Its reluctance to cooperate, thus, further strengthens the suspicion surrounding the Copperatech's financials.

In fact, the DSE rather intelligently has sent the ball to the security regulator's court. For, it is none but the latter who has allowed the company to mobilise funds from the market after examining the latter's IPO proposal that also included the company's 'audited' financial reports. If the allegations brought against the Coppertech are found true, the Bangladesh Securities and Exchange Commission (BSEC) is empowered to cancel the IPO and ask the company to refund the subscription money to the investors concerned. That, however, will be quite a hassle for hundreds of investors.

The developments involving the Coppertech's financials, undoubtedly, have put the BSEC in an uncomfortable situation. For the primary responsibility in the matters of detailed examination of the IPO proposals lies with the Commission which has only recently updated the public issue rules to plug loopholes.

The allegation of weaknesses in the scrutiny of IPO proposals is quite old. A good number of companies over the years have managed to float IPOs and then melted into thin air with the fund mobilised. In the 1990s, some companies even without having any manufacturing or operational infrastructures got themselves listed on the DSE only to decamp with investors' money. The quality of the financials submitted with most of the IPO proposals was not beyond questions.

All concerned, including the securities regulator, had taken a non-serious approach to the process of IPO flotation. This is one of the key factors that have contributed to the market coming to the present deplorable state. The situation is, undoubtedly, better now but it is far from being perfect. The latest Coppertech episode is a case in point. Among all the documents that the IPO-seeking companies are required to submit, the financials are of top-most importance. Those need to be examined thoroughly.

If it is finally proved that the company in question has submitted doctored financials with its IPO proposal, the securities regulator should take actions in accordance with the relevant laws and rules. The FRC, on its part, must also take the audit firm concerned to task for concealing information, if there is any. It is indeed necessary on the part of the regulators to be tough while dealing with this sort of offence for the greater interest of the country's capital market.


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