Fund raising from the capital market hit six-year low in the outgoing calendar year as only eight companies raised Tk 659.30 crore through initial public offering during the period.
Officials of the stock exchanges and Bangladesh Securities and Exchange Commission said stricter public issue rules that was amended in December 2015 was the main reason behind the fall in fund raising from the capital market through IPO.
It took time for the companies to fulfil the requirements of the newly-amended public issue rules and submit fresh proposals to the stock exchanges and to the commission as well, they said.
As per the securities rules, observations of the stock exchanges were made mandatory in getting IPO approval. Besides, companies which would claim premium on shares in addition to its face value will have to follow book building method, the amended public issue rules said. As a result, IPO proposals of some companies which were at the final stage in getting BSEC’s approval became inappropriate under the new rules.
Former BSEC chairman Faruq Ahmad Siddiqi told New Age, ‘Firstly, the amendment to the public issue rules was certainly a reason for the decline in fund raising through the capital market as the book-building method has been made mandatory for premium seeking companies and it takes almost a year to complete the whole procedure under the process.’
‘So, the decline in fund raising by the companies during the year of 2016 was nothing unusual,’ he said.
Asked, whether the issuer companies’ easy access to bank finance was among the other reasons for the slowdown, Faruq said, ‘The phenomenon is not something unique for 2016, but it could be a reason for the slide in last couple of years.’
‘Due to stagnant private sector credit growth and increase in deposits, banks’ funding are available for long-term project financing. That’s why, issuer companies may not feel interested in raising fund from the capital market,’ he said.
An example of companies’ delay in raising fund due to the public issue rules amendment is Energypac Power Generation.
The BSEC on January 5, seven days after the public issue rules amendment, at a commission meeting approved IPO of Energypac Power Generation allowing the entity to raise Tk 41.82 crore at an issue price of Tk 25 each including Tk 15 premium under fixed price method in violation of its amended rules. Following intense criticism, the commission in April overturned its decision by suspending the Energypac IPO.
Like Energypac some other companies needed to resubmit their IPO proposals complying public issue rules, resulting in decline in lower fund raising by issuer companies from the capital market.
According to Dhaka Stock Exchange data, only eight companies raised Tk 659.30 crore from the capital market in the outgoing year, while in 2015 nine companies raised Tk 675.72 crore from the market.
Of the eight companies, only two companies got premium, while the rest six issued shares at par, DSE data showed.
ACME Laboratories raised the highest Tk 409.60 crore from the capital market including Tk 359.60-crore premium by floating the entity’s 5 crore ordinary shares while Pacific Denims, Doreen Power Generation and Systems, Dragon Sweater and Spinning, Fortune Shoes, Yeakin Polymer, Bangladesh National Insurance and Evince Textiles followed the chart.
In 2011, fund raising by 16 companies was Tk 1,158.10 crore from the capital market. Fund raising from the capital market was Tk 730.50 crore, Tk 1,333.91 crore and Tk 1.263.62 crore respectively in 2012, 2013 and 2014.
Officials of the stock exchanges and Bangladesh Securities and Exchange Commission said stricter public issue rules that was amended in December 2015 was the main reason behind the fall in fund raising from the capital market through IPO.
It took time for the companies to fulfil the requirements of the newly-amended public issue rules and submit fresh proposals to the stock exchanges and to the commission as well, they said.
As per the securities rules, observations of the stock exchanges were made mandatory in getting IPO approval. Besides, companies which would claim premium on shares in addition to its face value will have to follow book building method, the amended public issue rules said. As a result, IPO proposals of some companies which were at the final stage in getting BSEC’s approval became inappropriate under the new rules.
Former BSEC chairman Faruq Ahmad Siddiqi told New Age, ‘Firstly, the amendment to the public issue rules was certainly a reason for the decline in fund raising through the capital market as the book-building method has been made mandatory for premium seeking companies and it takes almost a year to complete the whole procedure under the process.’
‘So, the decline in fund raising by the companies during the year of 2016 was nothing unusual,’ he said.
Asked, whether the issuer companies’ easy access to bank finance was among the other reasons for the slowdown, Faruq said, ‘The phenomenon is not something unique for 2016, but it could be a reason for the slide in last couple of years.’
‘Due to stagnant private sector credit growth and increase in deposits, banks’ funding are available for long-term project financing. That’s why, issuer companies may not feel interested in raising fund from the capital market,’ he said.
An example of companies’ delay in raising fund due to the public issue rules amendment is Energypac Power Generation.
The BSEC on January 5, seven days after the public issue rules amendment, at a commission meeting approved IPO of Energypac Power Generation allowing the entity to raise Tk 41.82 crore at an issue price of Tk 25 each including Tk 15 premium under fixed price method in violation of its amended rules. Following intense criticism, the commission in April overturned its decision by suspending the Energypac IPO.
Like Energypac some other companies needed to resubmit their IPO proposals complying public issue rules, resulting in decline in lower fund raising by issuer companies from the capital market.
According to Dhaka Stock Exchange data, only eight companies raised Tk 659.30 crore from the capital market in the outgoing year, while in 2015 nine companies raised Tk 675.72 crore from the market.
Of the eight companies, only two companies got premium, while the rest six issued shares at par, DSE data showed.
ACME Laboratories raised the highest Tk 409.60 crore from the capital market including Tk 359.60-crore premium by floating the entity’s 5 crore ordinary shares while Pacific Denims, Doreen Power Generation and Systems, Dragon Sweater and Spinning, Fortune Shoes, Yeakin Polymer, Bangladesh National Insurance and Evince Textiles followed the chart.
In 2011, fund raising by 16 companies was Tk 1,158.10 crore from the capital market. Fund raising from the capital market was Tk 730.50 crore, Tk 1,333.91 crore and Tk 1.263.62 crore respectively in 2012, 2013 and 2014.
Source: New Age
