Gazi Towhid Ahmed
Stockmarket experts say a cancellation of the initial public offering (IPO) by MJL Bangladesh Ltd is better than a conditional listing of the fuel company on the bourses.
They argue that if MJL is listed on conditions, set by the exchange authorities or the market regulator, the debate on the legality of the company’s listing will continue.
The experts made the observations after the Dhaka Stock Exchange indicated that it may give approval to MJL for a listing if it agrees to issue 30 percent bonus shares, referring to the Companies Act.
It is not a good practice, said the market analysts. They opposed the recommendation that the company should issue 30 percent bonus shares for shareholders as a listing requirement.
“The listing should be cancelled as it has been creating huge complexities in the capital market,” says Mirza Azizul Islam, former adviser of caretaker government.
Islam, also former chairman of the Securities and Exchange Commission, says: “There are two major problems: one is overpricing and the other is listing complexities. The authorities should advise the company to go for a new IPO subscription.”
“It is simply an unusual practice for a company to give bonus shares before getting listed in the bourses,” he says.
“Around Tk 609 crore has been stuck in the MJL IPO as the authorities failed to list the company,” he added “It is also a matter of concern as to why the SEC approved the overpriced IPOs.”
Fakhor Uddin Ali Ahmed, president of Chittagong Stock Exchange, says: “It will be better if the MJL IPO is cancelled by the regulator. We are confused, and we have to think about the investors’ interest.”
If the company offers 30 percent bonus shares, the price per share will be Tk 116.92 and the price-earnings ratio will still be higher, he says.
Ahmed says, “Ultimately shareholders will not be benefited if the company offers bonus shares.” However, if the company performs better in the future, the shareholders would be benefited, he adds.
Prof Salahuddin Ahmed Khan, who teaches finance at Dhaka University, said it is not a good process that the bourses suggested MJL Bangladesh issue bonus shares in order to be listed on the bourses.
It will raise problems when the company will declare dividends for the shareholders, says Khan. It would be the best for MJL Bangladesh if the under writer of the company buys shares at offer price within six months of trading, he says.
The under writer should place a buy-order at the offer price, as offer price cannot drop within six months, he adds.
A stalemate was created over the listing of MJL that used the book building method for its IPO after the stockmarket regulator suspended the method in January following a government instruction.
A volley of criticisms came from economists, market experts, analysts and stakeholders over the misuse of the mechanism.
Source: The daily star, 5 April, 2011