October 3, 2023, 10:58 am

Abu Taher Bappa

2020-12-20 22:21:59 BdST

IPO market vibrant in yet a pandemic year

Private companies have offloaded primary shares worth Tk 9.62 billion in the outgoing year, the highest amount in last six years, amid Covid-induced sluggish economic activities.

With the latest one of Mir Akther Hossain, the country's capital market witnessed eight initial public offerings (IPOs) in 2020, boosting the market capitalisation significantly and increasing the depth of the market.

The companies raised the highest amount of money from the market since 2014, when 20 IPOs having an aggregate value of Tk 12.63 billion were issued, according to the figures available with the Dhaka Stock Exchange (DSE).

Battered by the Covid pandemic this year, insiders said, the companies raised such huge amount of funds on expectations that it might help stimulate their business strength in the post-pandemic period.

Most part of the funds is, however, meant for business expansion, repayment of loans and meeting the working capital requirements. The market also has seen the entry of the largest ever IPO during the outgoing year.

As the IPOs were oversubscribed by 20 to 40 times, the successful subscribers earned a sizeable profit.

The companies followed two methods - fixed price and book-building - in issuing the IPOs.

Three companies used the book-building method - Walton Hi-Tech Industries (Tk 1.0 billion), Energypac Power Generation (Tk 1.50 billion) and Mir Akther Hossain (Tk 1.25 billion). The subscription of Mir Akther will begin on December 24.

Five other companies raised funds through using fixed-price method - Robi Axiata (Tk 5.23 billion), Dominage Steel Building Systems (Tk 300 million), Express Insurance (Tk 260.79 million), Associated Oxygen (Tk 150 million), and Crystal Insurance (Tk 160 million).

Robi, in the telecom sector, is now in the status of IPO receivables with the successful BO accounts while Energypac Power Generation is expected to hold a draw sometime this week.

Two IPOs came from the non-life insurance sector - Express Insurance and Crystal Insurance.

Walton and Dominage had already made their debuts in the engineering sector while Associated Oxygen from the fuel and power sector.

"We want to make the market vibrant through bringing new issues with good fundamentals," Rezaul Karim, spokesperson at the Bangladesh Securities and Exchange Commission (BSEC) said on Saturday.

"We are in favour of mobilising funds by companies from the people instead of banks," he said, adding that the new issues will strengthen the market as well as the economy.

However, the market analysts and experts advised the regulator to be cautious about the unscrupulous companies that tend to take advantage of lax IPO rules and regulations.

They argued that the weak firms might destabilise the market as they often fail to give dividend after one or two years of listing. They suggested doing proper valuation and scrutiny of the IPO proposals before approval.

"The regulator may consider annual turnover as the criteria of floating IPOs instead of existing paid-up capital-based systems," said an analyst who is working at a merchant bank.

"If one company registers good sales, we can term it a good one and such entity should be targeted by the regulator for making the market vibrant and efficient."

Dr AB Mirza Azizul Islam, a former adviser to the caretaker government, said making the secondary market vibrant is one of the key factors needed to create scopes for the new companies to raise funds through IPOs.

Dr Islam, also a former chairman of BSEC, said the companies having good fundamentals and reputation should be allowed to be listed to deepen the market.

He also stressed the need for bringing state-owned enterprises to further strengthen the market and make it efficient.

However, the market outlook appears to be bullish in the coming year too as some companies, including Lub-rref (Bangladesh), NRBC Bank, Lovello Ice Cream, eGeneration, Desh Insurance and Sonali Life Insurance, already got regulatory approval to launch their IPOs in the coming months.

In 2019, eight companies raised a total of Tk 5.52 billion, including premium, through IPOs, the DSE data showed.

However, fundraising through the IPOs was highest (Tk 16.78 billion) in 2011 following the stock market debacle in 2009-10.

The BSEC officials said that the regulator would ease the process further so that the companies could utilise the IPO proceeds in accordance with their needs.

Issue managers, who work on behalf of a company willing to be listed, are now very active in bringing new companies, he added.

On the other hand, the process of IPO approval has been made faster and easier, they said, adding that the regulator has already formed a committee in this regard.

The BSEC has rejected more than 11 IPO applications in the outgoing year for their failure to comply with the securities rules.

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