IPO shooting stars in capital market frustrate investors

At least 10 companies have entered the capital market showing high hopes in the last couple of years but they deviated from their commitments after raising funds and deprived the investors, according to the Dhaka Stock Exchange (DSE).

These firms showed an ambition for rapid growth and urgency of investment before listing. They also presented their products' potentiality and future demand in an inflated fashion.  Some companies also overstated their financial statements tactfully, alleged the investors. 

General investors usually make decisions to invest in a new firm after analysing its prospectus, but they suffer and feel cheated when the firms forget their commitments after raising the fund through initial public offering (IPO).

For example, Aman Cotton Fibrous Ltd collected Tk80 crore from the share market to buy new machinery and repay its loans in August 2018. So far, the company has only repaid its loans but it has neither set up any new machinery nor expanded its business. The fund has generated Tk15 crore as interest till September 2021.

In another similar instance, Regent Textile Ltd collected Tk125 crore from the capital market in 2015 to renovate its factory and start a new readymade garment project. But after five years, the company decided to acquire a 99% stake in its group sister concern Legacy Fashion Limited with the money they collected through IPO. 

Alif Manufacturing Company raised Tk109.40 crore by issuing the rights share in 2018, but the company has not been able to utilise the fund till now.

Golden Harvest Agro Industries also raised Tk89.93 crore by issuing the rights share in 2019, but the company has not used the fund so far.

Entrepreneurs said most of the companies could not work properly amid the pandemic as it was not possible to import machinery during the period.

Even after the situation started to return to normal, it was tough to get containers for importing machinery, they said.

Besides, currently getting delivery of the imported machines needs more than six months after opening a letter of credit (LC) due to the crisis of containers, they added.

Professor Abu Ahmed, a capital market analyst, said, "Some entrepreneurs do this as they have ill motives. The regulator should tighten conditions and supervise the IPO fund utilisation to minimise this malpractice gradually."

"Regarding the matter, the regulator can follow the practice in neighboring countries," he added.

Dr Mizanur Rahman, commissioner of the Bangladesh Securities and Exchange Commission, said, "The commission has been reviewing some companies who are delaying to use the IPO funds within the stipulated time. We are trying to find out the reasons behind it."

"Besides, the commission held discussions with the companies and forced them to use funds continuously," he added.