a year ago

Dealing with IPO drought issue

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'IPO pipeline dries as cos duck listings' screamed the headline of the page-one lead story of the FE's last Wednesday's issue.

The IPO (initial public offering) basket of the securities regulator, according to the FE report, is almost empty. One IPO will be opened for subscription on February 27 next. The permission to float five more is on hold for various reasons, including document-related deficiencies. They are unlikely to get clearance soon.

But the IPO scenario should have been the opposite with more and more companies wanting to go public since the market has been 'buoyant' in recent months barring occasional hiccups. Since the middle part of the last calendar year, the market has been going up. Even the second wave of the pandemic could not affect the surge in the enthusiasm of the 'investors'.

It seemed that the DSE general index would cross the 8,000-mark by the yearend. Notwithstanding a few aberrations with some listed issues, the investors were found in a good mood for a prolonged period for the first time after the second collapse of the market in December 2010.

Companies willing to gather funds usually choose such a market situation and submit IPO proposals. But that has not happened. Market insiders cite several reasons for reduced enthusiasm among the companies to go for public listing. The reasons include pandemic, single-digit interest-bearing bank loans and the amendment to public issue rules.

When pandemic could not hold back market from rising, the claim about its dampening effect is not tenable. The public issue rules amendment might have impacted the IPO flow, to some extent.

Unwillingness to go public is historically strong among most private and public companies. Some companies dislike two elements---transparency and accountability--- the listed companies need to ensure all along. The owners of the privately-owned companies, big or small, are required to answer questions from small investors at their annual general meetings. Family ownership is yet another issue.

Yet most companies need funds and that too for longer periods. The stock market remains an option for getting the same even though companies have to fulfil several conditions set by the securities regulator in the rules of the public issue.

Many companies would have chosen public listing in the absence of easy long-term financing by the banks. Though relevant policymakers talk about the negative aspects of long-term financing by banks, the interest rate policies appear to work in the opposite direction.

If the banks offer cheap loans, companies have no reason to take the trouble of going public. The latter option, though involves scrutiny by the securities regulator and general shareholders, is far more accommodative than bank financing. Companies can skip dividend payments if they incur losses. But lending institutions would not allow them to skip interest payments.

Regulatory scrutiny apart, the Bangladesh stock market is yet to have a bright image. Two market crashes and alleged manipulative activities have dented its credibility. Companies having a good track record feel disinterested in coming to such a market.

The number of companies registered with the Registrar of Joint Stock Companies and Firms is quite large. But only 400 plus companies are now listed on the bourses. The country's stock market needs more companies with sound fundamentals. There have been questions about the scrutiny of IPOS of a section of companies. The process of scrutiny should be rigorous.

Luring more companies to the stock market necessitates a multi-pronged move. On top of everything, there should be attractive fiscal benefits for their listing on the bourses. As far as corporate tax is concerned, the gap between listed and unlisted companies needs to be wider than the existing one. 

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