IPO funds rise 33pc

Some 15 companies and one mutual fund entered the stockmarket last fiscal year, raising about Tk 1,246 crore through initial public offerings.

While the number of IPOs was the same as in the previous fiscal year, the raised amount was 33 percent higher. Some 16 companies raised Tk 934 crore in fiscal 2013-14.

But most companies were using the IPO proceeds to pay back loans instead of expanding their business, which prompted the regulator to put a ceiling on the amount that can be used for repayment.

Bangladesh Securities and Exchange Commission in November last year decided to bar companies from using more than a third of the funds raised in an IPO to repay loans.

Other than loan repayment, the IPO proceeds were used for business expansion, machinery purchase, new project implementation, arranging working capital, buying land and expansion of existing plant.

The funds raised from the primary market should be invested for business expansion or meeting the working capital requirements, said Faruq Ahmad Siddiqi, a market expert and a former chairman of BSEC.

But a part of the IPO proceeds may be allowed for loan repayment, as it means a reduction in financial costs for the company and an increase in profitability, he said.

However, no company should be allowed to use more than 30 percent of its IPO proceeds for loan repayment, the former BSEC chairman added.

Khandakar Kayes Hasan, chief executive officer of LankaBangla Investments, said many of the companies that used most of their IPO proceeds for loan repayment are not performing well in the secondary market.

If the companies fail to keep their promises, especially on dividends, investors become the ultimate losers, he said, adding that the regulator should allow no more than 10-12 IPOs a year.

Hasan however praised the regulatory move to allow the bourses to make recommendations on any IPO prior to their approval from the BSEC.

The bourses won back the authority in May after three years: the practice was suspended by the regulator following a conflict between the BSEC and Dhaka Stock Exchange in 2012 over the listing of a new company. Meanwhile, 21 new securities were listed on the stock exchanges in fiscal 2014-15 in contrast to 13 a year earlier.

The pricing of new securities in the secondary market was better than in the previous year as the market was recovering from the downward trend triggered by the 2011 crash.

DSEX, the key index of the premier bourse, gained around 3 percent to reach 4,599 points until Thursday, the last trading day of the fiscal year.

With inclusion of the new securities, 555 companies are now trading on the DSE, the premier bourse.