The securities regulator has stepped up its effort to combat the practice of submitting IPO (initial public offering) proposals with doctored financial statements.
As part of the campaign, the Bangladesh Securities and Exchange Commission (BSEC) has rejected the IPOs of eight companies since June last. The rejection of IPOs came following the detection of inconsistencies in their financial results.
The companies wanted to raise funds from the capital market by presented fabricated financials. Other than cooking up figures, the IPO proposals submitted to the commission stopped short of complying with other regulations.
In its first meeting, the reconstituted commission rejected the IPO proposal of Al-Faruque Bags as the company breached the Corporate Governance Code.
The incumbent chairman of the BSEC joined in May last with a promise to ensure transparency and accountability in the operations of the commission.
Later, the BSEC rejected seven other IPO proposals after identifying different inconsistencies, including inflated profits, inventories and assets in their financial statements.
"Discipline should be brought back both in the primary and secondary market. The incumbent commission has ordered all wings to work on restoring disciplines in both the markets," said Mohammad Rezaul Karim, a BSEC spokesperson.
He said the securities regulator will do whatever is needed to bring transparency in the financial documents of both listed and non-listed companies.
"As part of the strong regulatory stance, the BSEC is addressing the anomalies, which remain pending. It's a continuous process," said Mr. Karim, a BSEC director.
He said the securities regulator will continue its disciplinary actions against any companies involved in resorting to irregularities, including doctoring of financial data.
The companies, whose IPO proposals have been rejected, are: JMI Hospital Requisite Manufacturing, B Brothers Garments, BD Paints, Beka Garments and Textile, SF Textile Industries, Al-Faruque Bags and Infinity Technology International.
Over the years, it was found that many companies raised capitals from the market showing rosy pictures through inflated financials.
For example, the securities regulator has rejected the IPO proposals of JMI Hospital, B Brothers Garments, BD Paints, Beka Garments and Textile and SF Textile Industries for overstating profits.
After the listing, it was found that the companies' financial indicators, including earnings per share declined gradually and many of them even closed operations.
Apart from canceling the IPO proposal, the securities regulator imposed fines on Al Faruque Bags, its issue managers and auditor for breaching public issue rules.
The company issued a CGC Compliance Certificate through Artisan Chartered Accountants - a statuary audit firm.
According to the CGC, the IPO seekers are required to issue CGC compliance certificates through a separate auditor.
JMI Hospital submitted its IPO proposals under the book building method while the remaining companies placed proposals to go public under the fixed price method.
The scrapping of JMI Hospital's IPO under the book building method was the first such action by the securities regulator.
Not only inflating profits, the company also took recourse to other anomalies while filing the IPO proposal.