Strict rules stymie flow of rights share

Only two companies offered rights share in the outgoing fiscal year, and the funds raised by them were more than four times lower than that in the previous fiscal year.

The two listed firms netted around Tk 314 crore from 22.15 crore rights shares, with steel manufacturing company GPH Ispat accounting for four-fifths of the fund, according to data from Dhaka Stock Exchange.

The Chittagong-based steelmaker, GPH Ispat, raised about Tk 262 crore by offering 18.71 crore rights shares of Tk 10 each in addition to Tk 4 as premium to its existing shareholders.

The other firm, Summit Alliance Port, raised around Tk 52 crore by issuing 3.44 crore rights shares at an offer price of Tk 15 each share, including Tk 5 as premium.

In fiscal 2014-15, five listed companies raised Tk 1,446 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 and an initial public offering (IPO) are not the same. In IPO, shares are offered to the general public through a stock exchange.

Low application from listed companies, strict scrutiny and delay in approving the rights offer by the regulator and a bearish trend in the secondary market were the main reasons behind the low number of rights offer, experts said.

Bangladesh Securities and Exchange Commission was very conservative in allowing the listed firms to raise funds through rights offering, they said.

Even, the regulator rejected some of the applications of rights offering.

On the back of a bearish trend in the secondary market, many listed companies that require additional funds found the market not very suitable for raising funds during this fiscal year,” said Md Moniruzzaman, managing director of IDLC Investments, a merchant bank.

“So, the number of applications for rights offering was also low compared to other years,” he said, referring to the strict scrutiny by the regulator in approving rights offer.