Mutual fund IPOs face under-subscriptions

The IPO (initial public offering) subscription of mutual funds (MFs) are facing under-subscription due to investors’ poor response, market sources said.

The situation deteriorated after the recent stock market crash that also made investors’ confidence very shaky.

Some fund managers termed the present crisis of MFs as “unfortunate”.

However, they also expressed their hope that investors’ confidence to MFs would be restored when the market would bounce back to a normal situation.

Recently two MFs faced under-subscriptions as their fund managers have failed to complete the subscriptions within the timeframe, set by the Securities and Exchange Commission (SEC).

“This is the first time that two MF IPO seekers got under subscription due to poor response of primary unit-holders,” an SEC official told the FE.

He said, the other fund managers presently are in uncertainty regarding the full subscriptions of the MFs, which are already approved by the SEC to go public.

“This crisis is very unfortunate for our MF industry,” Reaz Islam, a fund manager, told the FE.

“Our previous practice of gaining over-night profit through the units of MFs is an obstacle in establishing this industry,” he said.

He said both the fund managers and investors will have to follow the worldwide practice for the sake of MF industry.

The MFs, which went public during the bullish period of the stock marketexperienced better subscriptions.

For example, EBL First Mutual Fund had been over-subscribed by 17.19 times, ICB AMCL 2nd Mutual Fund by 8.29 times, ICB Employees Provident Mutual Fund One : Scheme One by 7.91 times, Trust Bank 1st Mutual Fund by 10.28 times, DBH 1st Mutual Fund 10.77 times, Prime Bank 1st ICB AMCL Mutual Fund by 10.77 times, IFIC Bank 1st Mutual Fund 17.59 times and Phoenix Finance 1st Mutual Fund 19.23 times.

Recently, the SEC increased the maximum limit for individuals from Tk 100 million to Tk 250 million in the placement shares of MFs, as the fund managers were facing problems to complete the placement portions.

The regulator has also lifted the limitations for institutional investors in the placement shares of MFs.

The regulator has also paved the way for MFs to quote prices in the bidding process of the IPO issues that will go public under the book building method.

But presently, the MFs are not able to do so as, the ministry of finance temporarily suspended the book building method.

Source: The financial express, 29 March, 2011

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