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IPO approval turned into a recipe
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Such activities weaken newly listed companies, he commented. “As a result, the stock market is now filled with ‘autistic companies’ that are harming the overall market.”
According to the former DSE director, even companies that sold shares at a premium saw their performance declining.
A premium is an added amount to the face value of a share when a company is considered well-performing and deserves a higher share price at issuance.
During the discussed period, nearly 51 companies were issued premiums -- some set by the stock regulator and others through bidding among institutional investors.
Of them, shares of 30 companies subsequently fell below their premium price. The most devastating development was five companies -- Appollo Ispat, Ratanpur Steel Re-Rolling Mills Ltd (RSRM), Regent Textiles, Zahintex Industries and GBB Power -- turned junk stocks afterwards.
While adverse economic conditions can sometimes contribute to the declining health of a company, Emon said the fall of many listed companies could directly be attributed to their “underlying intentions”.
The BSEC introduced the premium determination system by the regulator. Appollo Ispat even sought a premium of Tk 10 per share, while the regulator unprecedentedly increased it by Tk 2 to Tk 12.
Later, the regulator launched a book-building method, where institutional investors set the premium through bidding.
However, some institutional investors manipulated this system by placing higher bids to benefit themselves. In response, the BSEC introduced a more stringent valuation method to prevent institutional investors from bidding excessively.
Kazi Monirul Islam, CEO of Shanta Asset Management, said the Dutch bidding system, in which an auctioneer starts with a very high price, incrementally lowering the price until someone places a bid, should be reintroduced to attract quality companies to the market.
If a good company does not get fair prices, they will be less encouraged to enter the market, he said, adding, the regulator should punish anyone who bids high prices with bad intention, but the system itself should not be abolished.
Islam said the stock market needs good companies with strong financial health and the current stringent valuation method in book-building is a major obstacle to attracting them.
In the 14 years, only one multinational company, Robi Axiata, and one state-owned company, Bangladesh Submarine Cables PLC, have listed.
Regarding the reluctance of good companies to enter the market, Md Moniruzzaman, managing director of Prime Bank Securities, said non-listed companies have fewer reporting and regulatory obligations and can obtain bank loans more easily.
“So, why would they come to the stock market?” he questioned. “In most cases, those who have financial difficulties and cannot access bank loans are the ones who turn to the capital market.”
The National Board of Revenue (NBR), Bangladesh Bank and the BSEC should sit together According to So, issue managers cannot assess the performance of companies after their IPOs. If accountability can be ensured for all the stakeholders, including the auditor, the situation will improve, she said.
Although Bangladesh has many well-performing local and multinational companies, they are not interested in getting listed. Commenting on this issue, Khatun said most of the companies do not want to come to the market as they think it may hurt their comfortability.
On the other hand, the tax gap between listed and non-listed companies narrowed instead of widening, she added. At present, the corporate tax gap is 5 percentage points while it was 10 percentage points several years ago.