Experts, however, refute this claim, as more shares for the public is always better for the market
The share prices of Walton, Berger and the Investment Corporation of Bangladesh (ICB) in the bourses have started declining since the announcement of the Bangladesh Securities and Exchange Commission (BSEC) that 10% of their shares will have to be offloaded in the market.
Share prices of the three companies started declining from last Monday. That freefall continued until Thursday.
According to the Dhaka Stock Exchange, Walton's share price stood at Tk1,437.70 on Sunday, after which the stock market closed at Tk1,206.40 on Thursday. Prices dropped to Tk231.40 in just four days.
Berger's share price was Tk1,921 on Sunday and Tk1,841.10 on Thursday, a reduction of Tk79.90.
On Sunday, ICB's share price was Tk142, which was sold at Tk131.50 on Thursday, a Tk10.50 decrease.
Dhaka Tribune found that although a 2015 law stated that a company with assets of Tk150 crore must issue 10% shares in the market by initial public offering (IPO), it has not been implemented till date.
Asked why a law enacted in 2015 was not implemented for such a long time, Mohammad Rezaul Karim, executive director and spokesman for the BSEC, told Dhaka Tribune: "The big companies had requested us not to put it in the book building method. But now we have made our position clear on the matter and have instructed ICB, Walton and Berger to issue a total of 10% shares in the bourses within the next one year."
These shares must be left at market price and cannot go without more than 1% per month
"Therefore, we have instructed ICB, Walton and Berger to issue a total of 10% shares in the capital market of Bangladesh within the next one year. These shares must be left at market price and they must offload more than 1% of the company shares in a month," he added.
Explaining the decision, Shakil Rizvi, director of the Dhaka Stock Exchange (DSE) and also its former president, told Dhaka Tribune that transparency was needed everywhere.
Before the new addition to the book building method, the three companies' activities would have encouraged other companies to offload lesser shares in the market, which would have set bad examples, he also said.
As many companies as there are, all of them have at least 10% share in the capital market, but these three companies did not, Rizvi further said.
"Another thing that happens when there are lower shares in the market, the companies tend to dominate a lot. This can inspire stock price manipulators. I think such a decision is acceptable for all. Moreover, this decision has been taken to make the law equal for all," he added.
Berger Paints Bangladesh Limited currently owns 95% of the shares. The remaining 3.71% is in the hands of institutional investors, foreigners control 0.14%, and the rest 1.15% are in the hands of general investors.
If they want to offload 10% shares, they have to sell another 5% shares in the capital market.
Asked when it would be possible to implement the directive and reduce the share price, Khandkar Abu Jafar Sadique, company secretary of Berger Paints Bangladesh, told Dhaka Tribune that Berger Paints is a foreign holding company.
"Therefore, before implementation of this new directive to release shares in the market, Bangladesh Bank and some other institutions have laws and overall issues which need to be reviewed, which is somewhat time consuming. We have already informed the company directors about this instruction of BSEC," he said.
Regarding the share price, he also said that it is a normal process for the share market to go down.
"Since we do not have a bad position institutionally, I think the announcement of the authorities is one of the main reasons behind the sudden fall. However, I believe that the share price will return to the upward trend," Sadique added.
Walton Hi-Tech currently owns 99.03% of the shares held by the sponsoring directors. Foreign investors, institutional investors and general investors have 0.97%.
Of this, general investors have 0.48%. Institutional investors have 0.39% and foreign investors have 0.10%.
So, to fill the 10% target, they have to offload another 9.03% shares.
Managing Director and CEO of Walton Hi-Tech Industries Ltd Golam Murshed told Dhaka Tribune that Walton is conducting its overall activities including business operations in accordance with the rules and regulations of the capital market.
"We met the BSEC chairman for the interest of general investors and the overall development of the market and the country. The sponsors-directors of Walton had a request to increase the free-float shares to 5% within the next 3 years. The BSEC chairman has assured to consider it for the sake of investors and the stock market."
Meanwhile, Company Secretary Rafiqul Islam said that according to rules, sponsors-directors cannot offload shares during the lock-in period.
However, the sponsors-directors of Walton agreed to offload more shares with special consideration at the request made by BSEC and they have plans to invest the received money from offloaded shares in new industries, he added.
The company currently owns 69.81% of the sponsored directors and 27% of the government.
Here the company has a share of 96.81%. Institutional investors and general investors have 3.19%. Of this, general investors have 1.35%, while institutional investors hold 1.84%. To fill 10 percent of the shares, the company will have to offload another 6.81%.
Book building is the process by which an underwriter attempts to determine the price at which an initial public offering (IPO) will be offered. The process of price discovery involves generating and recording investor demand for shares before arriving at an issue price.
Fixed price method
In an Initial public offering (IPO), if the shares are offered at a fixed price, such an issue is known as fixed price issue. This is the second most preferred way of IPO.
In the offer document, the issuer has to give the reasoning and proper justification for the price fixed.