The flow of initial public offering (IPO) into the stock market is expected to drop this year, aggravating the IPO-drought thanks to the setting of new guidelines for the public offer.
Experts blame tougher regulations set by the government for the fall in the flow of IPOs which, they say, already led to overpricing of stocks.
Only 13 companies went public in the current year so far against 18 companies hitting the market in 2009, according to statistics of the Securities and Exchange Commission (SEC).
Most of the companies, which applied for IPOs in the first half this year, remain pending as they submitted applications just before formulation of the new guidelines.
The pending IPOs of 12 companies worth Tk 3.13 billion are Sunflower Life Insurance Company, Modern Poly Industries, Alliance Holdings, Janata Bank, Meghna Insurance Company, Bangladesh National Insurance, Desh General Insurance, Salvao Chemicals, Padma Life Insurance, Lanka Bangla Securities and Rangpur Dairy and Food Products.
The SEC has recently approved IPO of the two companies – MI Cement and Deshbandhu Polymer Industries. “It takes at least three to four months for an issue to hit the market from the date of approval,” said an official.
“Any rigid rule concerning IPOs will not bring any good to the market,” said Salahuddin Ahmed Khan, professor of finance at Dhaka University.
Rather IPO rules should be relaxed to lure more companies into listing themselves with a shallow market, he said.
Khan, also ex-chief executive officer of DSE said, “Such a move makes IPOs a less attractive source of capital for the fast-growing companies.”
“Financing for expansion of business should be entirely the matter of the firms, not the regulators. Offering undue proportion of equity to the market might have adverse impact on company earnings,” he said.
In November last year, the finance ministry decided to revamp public offering rules.
Later in March this year, SEC has introduced the new guidelines in line with the finance ministry’s decision.
Under the new regulations, minimum paid-up capital of a company interested to go public shall be Tk 400 million.
The company having paid-up capital between Tk 750 million and Tk 1.5 billion must offload 25 per cent of its paid-up capital if it seeks to raise money through IPO.
Minimum public offer in IPO above Tk 1.50 billion shall be 15 per cent of the said paid-up capital or Tk 400 million — whichever is higher.
“The new guidelines have not only hampered the flow of IPO, but hurt industrialisation,” said a leading market analyst.
“There should not be any coercive measure. The focus should rather be on quality control with incentive measures to lure the companies into the shallow market,” he said.
“Prices of most of the securities have become overvalued. Considering such a condition, the flow of new shares is urgently needed to prevent the market from being further overheated,” said Ahmed Rashid, managing director of Rashid Investment Services.
“Unfortunately, supply of shares does not increase keeping pace with demand for shares, which is a source of concern,” he added. The regulator’s recent price curbing measures will help stabilise the market in the short term, but not in the long term, said Rashid, also ex-senior vice president of Dhaka Stock Exchange.
The main index of DSE increased almost 50 per cent to 6800 as of yesterday (Tuesday) from 4536 of December 30, 2009.
The new investors have increased with every passing day as the beneficiary owners (BO) account stood at 2.8 million, an increase of 33 per cent over the same period last year.
Source: The financial express, 15 Sep, 2010