2018 marked better year for IPO

Fund collection by businesses through Initial Public Offerings (IPOs) in the current year saw a big leap, as Tk546 crore was raised as of early December, up by 149% from a year earlier.

High bank interest rates, failing to secure bank loans and flexible terms of stock market are some of the reasons that attracted companies to go public, analysts said.

Besides, good exposure to foreign buyers that favour listed firms for sourcing products and the demutualization of the Dhaka Stock Exchange (DSE) are two other major reasons to attract forms to get listed on the premier bourse, initially through issuing IPOs.

According to DSE’s latest data, a total of 13 companies have raised funds worth Tk546 crore which was Tk219.25 crore in the last year.

Of them, two companies have raised Tk280 crore using the book building method, while 11 companies collected Tk266 crore under the fixed price method.   

Among the fund raising companies, six in the textile and garment sector have raised Tk201 crore.

Aman Cotton raised Tk80 crore followed by Kattali Textile -Tk34 crore, M.L Dyeing Tk20 crore, VFS Thread Dyeing Tk22 crore, SK Trims and Industries Tk30 crore and Queen South Textile Mills collected Tk15 crore. 

Three pharmaceutical companies raised Tk70 crore.  They are- Indo-Bangla Pharmaceuticals -Tk20 crore, Silva Pharmaceuticals - Tk30 crore and Advent Pharmaceuticals -Tk20. 

Bashundhara Papers and Printing raised Tk200 crore, Intraco Refueling Station Limited collected Tk30 crore in the fuel and power category and SS Steel collected Tk25 crore, according to DSE data. 

Genex Infosys, an IT company has raised Tk20 crore. 

Analyzing the IPO prospectus, it was found that most of the companies have raised fund to repay the bank loans taken for the business, while a portion would be utilized to expand the existing business capacity.  

After the stock market crash in 2010, the highest fund-raising of Tk1677.71 crore in 2011 took place through IPOs. Last year, fund collection through IPOs saw the lowest in last 10 years to Tk219.25 crore.

Last year, a total of six companies and a mutual fund have raised Tk219.25 crore, which was Tk849.30 crore in 2016. 

“This year, we got the Chinese consortium as our strategic partner, which boosted confidence of entrepreneurs to be listed with the stock market to raise funds,” DSE Brokers’ Association (DBA) president Shakil Rizvi told the Dhaka Tribune.

A company owner is now getting proper prices for their shares under the current market situation, while stock investors are also being able to buy shares at reasonable prices, said Shakil.

As a result, the market is witnessing supply of new shares along with new investors, he added. 

“Issue mangers, who work on behalf of a company to be listed, are now very active in bringing in new companies. On the other hand, the process of the IPO has been made faster and easier,” Bangladesh Securities and Exchange Commission (BSEC) spokesperson Md Saifur Rahman told the Dhaka Tribune.

This is why the trend of fund raising through IPOs saw a sharp rise, he added.

Market still lacks supply of quality shares

Stock market analysts think there is still shortage of quality stocks, a requirement for the stability of the stock market. In absence of quality stocks there remains always a possibility of being overvalued, creating scopes for manipulation in the market.

“We cannot judge the supply of stocks with the numbers of listed companies. Market’s maturity or depth depends on the supply of quality stocks, which is still below the demands,” A Quadir Chowdhury, astock market analyst told the Dhaka Tribune. 

Investors want investment in companies having good financial track records and performances in terms of declaring dividends, he added. 

To this end, issue mangers should concentrate on bringing more multi-national and local companies with good financial fundamentals, he said.

How to attract more companies in stock market 

It is widely believed that the opportunity of the stock market is still under-utilized. As a result, stock market is yet to be a major source for fund for business expansion. In the fiscal year 2017-18, market capitalization to GDP was 17.19%. 

In attracting more companies to be listed in the stock market, experts suggested simplification of the process and bring government companies to the market to be examples.

“As the country’s economy is growing fast, there will be more demands for working capital for the expansion of existing businesses. The stock market can be a great source for funds but the opportunity is still untapped,” AB Mirza Azizul Islam former advisor to the care taker government told the Dhaka Tribune.

In attracting entrepreneurs, the Bangladesh government has to set example by offloading shares of state owned companies, said Islam.

Besides, the stock market regulator, stock exchanges and issue managers also have roles in attracting companies to start getting listed with the stock exchanges, the economist added. 

Lengthy process is a barrier

Issue mangers blamed the cumbersome andlengthy process of approving IPOs for the under-utilization of capital market advantage. They claimed that it takes an unusual length of time to approve a company.

Seeking anonymity, an issue manager told the Dhaka Tribune: “With all the necessary documents, we placed the prospectus of a company to the regulator one and a half yearsback, but we are yet to receive approval.” 

This unusual delay increases the cost and create unwillingness to get listed, he added.
 “Frequent changes in rules and regulations especially the in the book building method increases the time to complete an IPO process, which discourages entrepreneurs to get listed with the stock exchanges,” Hassan Zabed Chowdhury, CEO of LankaBangla Investments told the Dhaka Tribune. 

Usually, good companies are willing to be listed under the book building method. But there is a shortage of skilled manpower at the BSEC, which is another barrier, he added. 

“It is our duty to protect the investors’ rights. As a result, we have to scrutinizefinancial statements and other documents well, to ensure proper pricing of an IPO, therefore, it takes a little time but is not unusual” said Md Saifur Rahman. 

He blamed the issuer for the delay in getting reply to the query on IPO prospectus if there is any.