A private commercial bank, offering Tk 12.65 crore worth of shares for public subscription, appears to have violated a legal provision related to issuance expenditure.

The IPO from Al-Arafah Islam! Bank Limited has 1.26.500 ordinary shares for Tk 1000 each. The subscription opens July 12 and closes July 21.

The bank has spent Tk 49.85 lakh according to section 6.8 of the published prospectus which comes to 3.94 per cent of what is being offered to public. The 'maximum allowable limit is. 2.5 per cent.

The Banking Companies Act says "no banking company shall pay out directly or indirectly by way of commission, brokerage, discount or remuneration in any form in respect of any shares issued by it. any amount exceeding in the aggre-

gate two and one-half per cent of the paid-up value of the said shares."

According to a senior Bangladesh Bank official. 2.5 per cent is the maximum celling one can spend "and any amount above that is a clear violation of the banking act."

The responsibility lies with the Securities and Exchange Commission (SEC) since its their Job to check these things before approving the prospectus." he said.

The SEC. which Hkd been ' very cautious about shouldering responsibilities regarding disclosures by companies, has undertaken the responsibility to ensure that adequate and full disclosures are made for the protection of the investors.

"It is the Commission s responsibility to ensure that full and fair disclosures are made in

the prospectus on the basis of documents/ papers submitted, so that the investors can make informed investment decision." said the prospectus, published in newspapers.

The directors, for their part, said that all conditions concerning the public Issue and the prospectus nave been met. "and that there are no other information or documents the omis-

sion of which make any information or statement therein misleading, for which the Commission may take any civil, criminal or administrative action as it may deem fit."

They also swore that all information contained in the prospectus give adequate details. to ensure full and fair disclosure to enable investors to make informed decisions re-

garding investment in these shares. "Any misrepresentation. suppression in any part or portion of the prospectus will render to the company and its directors/sponsors jointly and severally to criminal liability."

Md Anisur Rahman, an Al-Arafah vice president and secretary to the Board of Directors, denied having violated the rule. "We checked with Bangladesh Bank about the issue expenses."

The limit on issue expenses should be calculated on th© Wl paid-up capita) (wjhich is Tk 25.30 crore including sponsors' shares) and 2.5 per cent on the amount is well below the maximum ceiling." he argued.

But company lawyers do not endorse the Al-Arafah official's argument, saying issuing expenses mentioned in prospectus were not made for issuance of sponsors' shares (see table).

"Therefore, it is certainly limited to the public shares."

"What happens when a company offers rights shares? Are the issue expenses calculated on the sponsors shares too?" asked a top company lawyer. This is totally illogical".

The issue manager. First Securities Services Ltd. has certified that all the legal requirements had been duly complied with. Officials of First Securities who could explain the issue manager's position could not be 'reached!'

The investors still remember the bitter experiences and the consequences they faced by relying on prospectus approved by the SEC in the past.

Tareq Moudud. the SEC executive director in charge of IPOs, was evasive. After repeated attempts, he could not be reached for comment.