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Looking Back 2019: A depressing year for IPOs, lowest in nine years

  • Published at 09:26 pm December 26th, 2019

The figure is the lowest since 2010, when the raised amount was Tk 3,390 crore

The outgoing year saw a sharp decline in the issuance of initial public offerings (IPOs) to collect fresh fund from the primary market as the amount of finance and number of firms made debuts are the lowest in nine years in 2019.

The amount raised through the IPOs was Tk641.93 crore, down from Tk655.40 crore from 13 offerings in the previous year, according to data of the Bangladesh Securities and Exchange Commission’s (BSEC).

The figure is the lowest since 2010, when the raised amount was Tk 3,390 crore.

By the latest data of the BSEC, only nine companies raised funds through IPOs in the current year while only a listed firm boosted their capital-base from rights shares.

Golden Harvest raised Tk89 crore from the rights offering.

The highest fund raising through IPOs was Tk3,390 crore in 2010.

On April 30 this year, stock market regulator BSEC stopped approving fresh IPO proposals until making some changes to the public issue rules. The new public issue rules were approved in September that impacted the fund rising bids by businesses badly, say stakeholders in the capital market.

They have also said the BSEC’s go slow policy in giving approvals and a downward trend in the secondary market were the major factors behind the significant fall in IPOs this year.

An analyst at a leading brokerage house says the current commission is heavily criticized for approving IPOs of fundamentally weak companies that made it cautious over approving new offerings.

Analyzing the IPO prospectus, it was found that most of the companies raised fund to repay the bank loans taken for their businesses, while a little portion was utilized to expand their existing business capacity.

Talking to Dhaka Tribune, stakeholders of the stock market have said in absence of quality stocks there remains always a chance  for shares in poor performing companies being overvalued, creating scopes for manipulation in the market.

Fund raising from stock market in 2019

In 2019, only eight companies have raised funds through IPOs.

Of them, three companies raised Tk307 crore using the book building method, while the rest five collected Tk245 crore under the fixed price method.  

Esquire Knit raised Tk150 crore, Runner Automobiles Tk100 crore, ADN Telecom Limited Tk57 crore, New Line Clothings Tk30 crore, Silco Pharmaceuticals Tk30 crore, Copppertech Industries Tk20 crore, SEA Pearl and Resort Tk15 crore and Ring Shine Textiles Tk150 crore in the year of 2019.

What Is an IPO ?

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment.

Previews of 10 years scenario 

Through the Initial Public Offerings and rights shares 14 companies including a mutual fund collected Tk655crore through IPOs in 2018 while six companies including two mutual funds raised Tk 1442 crore in 2017. 

In 2016, Tk 950 crore was raised through IPOs and rights offerings , Tk675 crore in 2015,  Tk3,263 crore in 2014,  Tk910 crore in 2013,  Tk 1,842 crore in 2012,  Tk3,233 crore in 2011,  Tk3,390 crore in 2010 and  Tk917 crore was raised in 2009.

Shortage of quality stocks

Stock market analysts think there is still shortage of quality stocks, deemed fundamental requirement for the stability of the stock market. In absence of quality stocks there remains always a possibility of being overvalued, creating scopes for manipulation in the market.

“We cannot judge the supply of stocks with the numbers of listed companies. Market’s maturity or depth depends on the supply of quality stocks, which is still below the demands,” A Quadir Chowdhury, a stock market analyst told Dhaka Tribune. 

Investors want investment in companies having good financial track records and records of declaring dividends, he adds.

To this end, issue managers should focus on bringing in more multi-national and local companies with good financial fundamentals in the market, he adds.

On the other hand, issue mangers blame the cumbersome and lengthy process of approving IPOs for the under-utilization of capital market advantage. They claim that it takes an unusual lengthy time to approve a company.

Seeking anonymity, an issue manager told Dhaka Tribune: “With all the necessary documents, we placed the prospectus of a company to the regulator one and a half years back, but we are yet to receive approval.”

How to attract more companies in stock market?

Experts and stakeholders suggest that stock market regulator Bangladesh Securities and Exchange Commission should put emphasis on quality IPOs to recoup investors’ dented confidence and make a turnaround in the wobbly share market.

Former adviser to a caretaker government AB Mirza Azizul Islam told Dhaka Tribune: “The stock market is a great source of funds, but its true potential is still untapped”.

“To attract entrepreneurs, the government has to set an example by offloading shares of state-owned companies (to the stock market),” he said.

Aziz, also a former BSEC chairman, has added that the stock market regulator, stock exchanges, and issue managers also have  key roles in attracting companies to get listed on the bourses.