Low profile, weak cos dominate IPO market
14 firms raise Tk 5.71b in current FY
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Low profile and fundamentally weak companies dominated the primary market as 13 entities and one mutual fund raised Tk 5.71 billion through IPOs in the current fiscal year.
The Dhaka Stock Exchange (DSE) data shows 13 companies and one mutual find raised an aggregate amount of Tk 5.71 billion by floating IPOs during July, 2018 to May 2019.
Fundraising by companies through IPOs rose 5.54 per cent year-on-year in the current Fiscal Year (FY) 2018-19 compared to the same period of the previous fiscal.
In the FY 2017-18, nine companies and two mutual funds raised a total of Tk 5.41 billion through IPOs, according to the DSE data.
The newly-listed companies follow two methods -- fixed price and book-building -- in issuing IPOs in the country's capital market.
Two companies-Esquire Knit Composite and Runner Automobiles- used book-building method.
Companies that intend to offer primary shares with premium prices followed the book building method to raise capital from public.
Eleven other companies that raised funds using fixed-price method were VFS Thread Dyeing, ML Dyeing, Silva Pharma, Indo-Bangla Pharma, Kattali Textile, SS Steel, Genex Infosys, New Line Clothings, Silco Pharma, Coppertech Industries and Sea Pearl Beach & Resort. One mutual fund was SEML FBLSL Growth Fund.
Most of the funds, raised through IPOs, were meant for business expansion, repayment of loans, and supporting working capital requirements.
Market analysts identified dearth of quality IPOs as a major reason behind the poor investor confidence in the market.
"We need big and reputed companies to be listed on the market," said a leading broker.
He noted that the pricing of new securities in the secondary market was not so attractive for investors, as the market has been on a downward trend.
Recently, the stock market regulator has moved to implement its reform measures on the primary market as part of its two-stage plan to restore investors' confidence.
On April 29, the Bangladesh Securities and Exchange Commission (BSEC) unveiled the reform measures.
The regulator approved a draft proposal regarding amendment to public issue rules. The commission will seek public opinions on the change.
According to the proposals, the IPO quota facility for the general investors would be raised to 50 per cent from the existing 40 per cent under the fixed price method of IPO and it would be increased to 40 per cent from the current 30 per cent under the book building method.
The quota facility of eligible investors would be cut to 50 per cent from the existing 60 per cent under the book building method while it would be reduced to 30 per cent from the current 40 per cent under the fixed price method.
The regulator proposed that the eligible investors must invest a certain amount of funds in the capital market set by the commission to get the IPO quota facility.
The size of the public issue under the fixed price method must be minimum Tk 500 million or 10 per cent of the company's paid-up capital, whichever is higher.
The size of the public issue under the book-building method must be at least Tk 1.0 billion or 10 per cent of the company's paid-up capital, whichever is higher.
The stock market regulator will not accept any new application for IPO until the Bangladesh Securities and Exchange Commission (public issue) Rules, 2015 are amended.