Of Tk581 crore raised from initial public offerings (IPOs) by 12 companies in 2018, Tk495 crore (85.25%) has been allocated for business expansion, while the remaining Tk86 crore (14.75%) will be used to repay bank loans.
The percentage of total raised funds earmarked for debt repayment in 2017 was 2.5%.
In 2018, the textile, paper, and printing sectors were the top ranking sectors to raise money through IPOs, followed by mutual funds, pharmaceuticals, and the fuel and power sector.
As per the book building method, Aman Cotton and Bashundhara Paper Mills issued shares with premiums, raising 48% of the total offer size, and used 87% and 70% of the funds respectively for development and expansion purposes.
The 12 new companies that got listed in 2018, are: Aman Cotton which raised Tk80 crore, Kattali Textile raised Tk34 crore, ML Dyeing, Tk20 crore, VFS Thread Dyeing which raised Tk22 crore, SK Trims and Industries raised Tk30 crore, and Queen South Textile Mills, which collected Tk15 crore.
Furthermore, three pharmaceutical companies raised Tk70 crore through IPOs: Indo-Bangla Pharmaceuticals, which raised Tk20 crore, Silva Pharmaceuticals, which raised Tk30 crore, and Advent Pharmaceuticals, which raised Tk20 crore.
Bashundhara Paper Mills also raised Tk200 crore, Intraco Refueling Station Limited collected Tk30 crore, while CAPM IBBL Islamic Mutual Fund collected Tk80 crore, according to Dhaka Stock Exchange (DSE) data.
As per Bangladesh Securities and Exchange Commission's (BSEC) rules, no more than one-third of issue proceeds can be used for repaying loans or as working capital.
Analysts said that high bank interest rates, failing to secure bank loans, and the flexible terms of the stock market are some of the factors that made companies go public.
Moreover, good exposure to foreign buyers who favour listed firms for sourcing products, and the demutualization of DSE, also played a role in encouraging firms to get listed at the premier boursse, initially by issuing IPOs.
DSE Brokers’ Association (DBA) President Shakil Rizvi said: “Last year, we got the Chinese consortium as our strategic partner, which encouraged entrepreneurs to get listed.”
He explained that company owners are now getting "proper prices for their shares", while stock investors are also being able to "buy shares at reasonable prices."
"As a result, the market is witnessing a surge of new shares, and new investors," Shakil added.
Speaking to the Dhaka Tribune, BSEC Spokesperson Md Saifur Rahman, said that issue managers who work on behalf of a company getting listed, "are now very active in bringing in new companies."
"Additionally, the process of issuing IPOs has been made faster and easier,” Saifur stated, adding that this is why the trend of raising funds through IPOs has seen a sharp rise.
It is widely believed among financial analysts that the opportunities presented by the stock market is still underutilized, which is why the market is yet to be a major source of funds for business expansion in Bangladesh.
In the previous fiscal year (FY2017-18), the market capitalization to GDP ratio was 17.19%.
In attracting more companies to be listed in the stock market, experts suggested simplification of the process and bringing government companies to the market to be examples.
Former adviser to the caretaker government, AB Mirza Azizul Islam, said there will be more demand for working capital for the expansion of existing businesses as the economy grows rapidly. "The stock market can be a great source of funds, but its true potential is still untapped.
"To attract entrepreneurs, the Bangladeshi government has to set an example by offloading shares of state owned companies [to the stock market]," said Islam.
The economist added that the stock market regulator, stock exchanges, and issue managers also have key roles to play in attracting companies to get listed with the bourses.
Market analysts think there is still a shortage of quality stocks, a requirement for the stability of the stock market. In the absence of quality stocks, there always remains a possibility of overvaluation of shares, creating scope for market manipulation.
Stock market analyst, A Quadir Chowdhury, said the supply of stocks cannot be judged by the number of listed companies. "Market maturity or depth depends on the supply of quality stocks, which is still below the demand.”