Funds raised through rights issue double

Funds raised by listed companies from rights shares more than doubled in fiscal 2014-15 from a year earlier.

Five listed firms netted around Tk 1,446 crore from 60.20 crore rights shares, with state-run Investment Corporation of Bangladesh (ICB) accounting for three-fourths of the fund, according to data from Dhaka Stock Exchange.

Of the firms, four were from the financial sector and one from textile.

In fiscal 2013-14, six listed companies raised Tk 681.38 crore, according to DSE statistics.

A rights issue is an issue of additional shares by a listed company to raise capital from existing shareholders.

With a rights issue, existing shareholders get the privilege to buy a specified number of new shares from the firm at a particular price within a specified time.

A rights issue is not the same as an initial public offering, where shares are offered to the general public through a stock exchange.

Of the funds, ICB raised Tk 1,054.68 crore by issuing 21.09 crore ordinary shares of Tk 10 each, in addition of Tk 40 as premium.

The purpose of issuing the rights shares was to raise its paid-up capital for investment in primary and secondary markets and to pay off loans, according to the prospectus of the state-run investment bank.

Four other listed companies issued the rights shares at par or face value.

The financial sector companies issued rights shares either to reach their capital adequacy ratio or to strengthen their capital base in line with regulatory requirements, said Md Moniruzzaman, managing director of IDLC Investments, a merchant bank.

Companies from other sectors were not interested in raising funds by issuing rights shares as the regulator was conservative in allowing listed companies with premium, he said.

Conservative pricing is good for existing shareholders but not attractive to the company, Moniruzzaman added.

The Bangladesh Securities and Exchange Commission imposed some conditions on rights issue rules in October last year to make the capital raising mechanism more transparent.

No listed company can offer rights shares within two years of publication of an IPO prospectus, or before full utilisation of the funds raised through an IPO or repeat public offering or previous rights, according to the modifications.