Capital through rights shares falls in gloomy market

 

Nine listed companies raised about Tk 865 crore, including premiums, through rights shares this year, which is 63 percent lower than last year.

The companies issued 49.79 crore rights shares to raise the amount, according to data from the Dhaka Stock Exchange.

The fall in capital raised through rights shares was mainly due to a downward trend in the secondary market that continued since the price debacle in January 2011.

In addition, a good number of companies raised funds from shareholders through rights offers in the previous two years when the market was either bullish or better than this year.

In 2010, 24 companies raised Tk 1,760 crore through 88 crore rights shares. Twenty-one firms raised Tk 2,341 crore in 2011.

A rights issue is an issue of additional shares by a listed company to raise capital from existing shareholders.

With the rights, the existing shareholders have the privilege to buy a specified number of new shares from the firm at a particular price within a specified time. A rights issue is in contrast to an initial public offering (IPO), where shares are offered to the general public through a stock exchange.

“The tendency of capital raising through rights offer and IPO increases when the market passes through a bullish trend,” said Md Moniruzzaman, managing director of IDLC Investment Ltd, a merchant bank.

“On the other hand, the companies remain in uncertainty in a bearish market.”

Besides, Moniruzzaman said, as a major fund was raised in 2010 and 2011, mostly by the financial sector companies to meet regulatory requirements, so the figure fell this year.

But rights share issues were identified as a way of manipulating and inflating price, especially in 2010, by a government probe committee on the stockmarket scam.

The government probe panel on the share market scam of January-February last year in its report said a strong cartel has used the primary market as a tool to fleece people by inflating share prices.

“The 1996 crash took place in the secondary market. But this time it was created in the primary market,” said the report, which was released in April last year.

Following a recommendation of the probe committee, the Securities and Exchange Commission modified the rights issue rules to make it more transparent.

sarwar@thedailystar.net

Source: The Daily Star

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