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At least four listed companies have failed to utilise the IPO (initial public offering) funds within the time mentioned in their prospectuses, depriving general shareholders of their timely benefits.
While there were excuses that the business climate has been adverse, there were motives too to take undue advantages in violation of the securities rules.
The firms that came under regulatory scrutiny recently are Aman Cotton Fibrous, Acme Pesticides, Associated Oxygen, and Silva Pharmaceuticals, as revealed by their auditors last week. Although they raised money between 2018 and 2021, they are yet to ensure complete utilization of the funds.
Investors usually decide to invest in new stocks, having analyzed the IPO prospectuses. But these firms have shrugged off their commitments after raising money from the public for business expansion.
"As a result, investors don't get their expected returns," said Akramul Alam, head of research at Royal Capital, a top-tier brokerage firm.
Many companies enter the capital market, giving high hopes to investors. In many cases, they exaggerate their products' potential and future demand, overstating expected growth in their prospectus, added Mr Alam.
Auditors' reports on fund utilization as of January and February this year showed that the funds were meant for new projects, construction, land acquisition, installation of plants and import of machinery.
Talking to the FE, an official of Aman Cotton, wishing not to be named, said unfavorable business climate -- pandemic and dollar crisis due to the Russia-Ukraine war -- had been a major barrier to fund utilization for the last few years.
Aman Cotton collected Tk 800 million by issuing primary shares in 2018. It was supposed to complete utilisation of the money by August next year.
The company used only Tk 83 million to repay loans within the stipulated time frame while Tk 717 million remained unutilized as of February 28 this year, according to its auditor's report.
Aman Cotton made an appeal to the Bangladesh Securities and Exchange Commission (BSEC) in January this year for a time extension until December 2028 for fund utilisation.
Meanwhile, the securities regulator in an investigation found that the company used Tk 730 million from the IPO proceeds to create fixed deposit receipts (FDRs). These FDRs were then used as security money against credit facilities to its sister concerns.
Under the existing laws, companies are prohibited from transferring IPO funds to other accounts or using them for purposes not specified in their prospectuses. Any changes to the use or timing of these funds require prior approval from at least 51 per cent of general shareholders at a general meeting. A proper notice of such a meeting must also be given to all shareholders.
The securities regulator led by Khairul Hossain did not take any tough action against Aman Cotton over the matter.
In January 2022, the BSEC fined each director of Aman Cotton Tk 30 million, excluding the independent directors, and imposed a Tk 1.0 million fine on the company's auditor, ATA Khan & Co for anomalies in the company's IPO fund utilisation plan and financial statements.
Then the new auditor, G.Kibira & Co was hired, which shared its observation about IPO fund utilization on the website of the Dhaka Stock Exchange last week. It said the interest on the FDR(s) amounted to Tk 193.67 million and Tk 185.12 million had been transferred as an inter-company loan to another sister concern of Aman Group.
"We recommend seeking approval for such investments and transactions from the shareholders of the company during the AGM," said the auditor.
The IPO proceed rules should be tightened so that companies are compelled to use such funds properly, said Mr Alam. Besides, the regulator has to better understand the motive of issuers who want to raise funds from the equity market.
An official of the BSEC, requesting anonymity, said the regulator approves IPO proposals with an intention of facilitating the growth of companies. The new commission has been working for sustainable development of the capital market and to bring those involved in irregularities to justice to ensure transparency and accountability.
However, other parties, independent directors for example, have a big role to play in ensuring timely implementation of the projects for which money is collected, said the BSEC official.
Acme Pesticides raised Tk 300 million through an IPO in November 2021 for business expansion and to repay loans to National Finance.
The company was supposed to complete utilisation of the money within the next 24 months. But more than 30 per cent of the fund remained unutilized as of January this year whereas the company is yet to pay back dues amounting to Tk 55 million to National Finance as both the parties are locked into a legal battle at the High Court.
The company said it had kept Tk 55 million aside from the IPO fund in a separate account. At the same time it sought a time extension until June this year for the utilization of the remaining fund.
Silva Pharmaceuticals was supposed to use its IPO proceeds of Tk 300 million in 24 months after issuing primary shares in 2018. However, Tk 50.95 million remained unutilised as of February this year.
The drug manufacturer have already had the deadline extended three times, citing challenges in doing business.
Associated Oxygen collected Tk 150 million from the market to expand its business in 2020. The company said it would use the money within two years but Tk 2.41 million is yet to be used.
The company's board got time extension thrice, with the adverse-business-climate excuse.
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