Finance ministry asks SEC to take caution in approving IPO

The finance ministry has advised Bangladesh's capital market regulator to be more active in safeguarding interests of the investors.

The directive came after the value of Initial Public Offering of several companies stirred controversy.

IPO is the first sale of stocks by a company to the public to raise capital from the market.

In a letter, the ministry told the SEC that it should approve floating of IPOs only after scrutinising and fixing their prices.

According to Dhaka Stock Exchange, share values of companies that offered IPOs last year remained around the same this year. In most cases investors suffered losses.

A Bank and Financial Institutions Division official said the SEC had recently approved IPOs that had added premium to their face values.

"Investors suffered losses as shares of these companies were traded at lesser value than the approved one," he told bdnews24.com.

A share price consists of face value and premium. 'Face value' is the nominal value of a share while 'premium' is the additional amount charged by a company from investors in addition to its face value.

Apollo Ispat offered IPOs on Dec 24 last year and raised a capital of Tk 2.2 billion. It offered shares at Tk 22, adding Tk 12 premium.

On Wednesday, its shares traded at Tk 20.

On Mar 4 this year, Khulna Printing and Packaging Limited (KPPL) got the SEC clearance to issue 40 million shares to raise Tk 400 million from the market.

But the High Court slapped an embargo on the process after an investor claimed KPPL had furnished false information in its prospectus to attract investors.

A day later, the KPPL issued shares after the Appellate Division overruled the High Court order.

Its shares were traded at Tk 10 initially and later rose to Tk 43. But on Wednesday, the shares were priced at Tk 22.

There are allegations that IPOs of most of the companies were approved on political considerations last year.

Shasha Denims Limited has been permitted to offer 50 million shares to raise Tk 1.75 billion from the market.

Its shares are priced at Tk 35 -- face value Tk 10 and premium Tk 25. Dec 21 was last date for local investors to apply for IPO.

Water Resources Minister Anisul Islam Mahmud's wife Parveen Mahmud is the company's chairperson while their son Shams Mahmud is its managing director.

The High Court on Dec 15 questioned Shasha's IPO.

Individual investors have protested against SEC decision to issue IPO with exaggerated premium.

The finance ministry letter reminded the SEC that it had authority to impose necessary conditions to protect the investors' interests while approving IPO if there were fears that false information were being furnished.

Moreover, SEC has been advised to approve premium share issuance after checking necessary information.