Delay in IPO fund utilisations deprive investors

Infographic: TBS

Some listed companies have delayed using their initial public offering (IPO) funds by showing trivial reasons, depriving investors of their timely benefits.

Usually, general investors decide to invest in a new firm after analysing its prospectus. But firms forget their commitments after raising the IPO funds. As a result, investors suffer and become deprived of their expected returns.

In August 2018, Aman Cotton Fibrous collected Tk80 crore from the share market to buy new machinery and repay loans. But the company has only repaid its loans so far and is yet to set up new machinery for business expansion.

Instead of buying machinery, it pledged Tk73 crore of the IPO fund as security for credit facilities for two of its sister concerns – Akin Carries Limited and Aman Food Limited.

Kattali Textile Mills Ltd raised Tk34 crore in 2018 but did not complete the utilisation of the IPO proceeds in the scheduled time. The controversial company tried to mislead the securities regulator in this regard by filing false updates and submitting fake bank statements to back their false claims.

In the aftermath, the Bangladesh Securities and Exchange Commission (BSEC) fined its managing director Tk1 crore and other directors, except for the independent and nominated directors, Tk50 lakh each.

SS Steel Limited was supposed to buy machinery within 18 months after receiving its IPO fund but is yet to do so.

ADN Telecom, Runner Automobiles, Walton Hi-Tech, Esquire Knit Composite, Golden Harvest, Runner Automobiles, and Dominage Steel Building Systems are also delaying in using their IPO proceeds showing numerous reasons and taking approval from their shareholders.

Market insiders said many companies enter the capital market showing high hopes but they deviate from their commitments after raising the funds and thus disappoint their investors.

The firms show their growth appetite and investment urgency before listing. They also exaggerate their products' potential and future demand scenarios. It is alleged that many of the firms tactfully overstated their financial statements, market insiders added.

The BSEC, which had earlier extended the utilisation deadlines of the IPO proceeds because of the Covid-19 pandemic, has now called for the fast utilisation of funds by the newly-listed companies.

A BSEC official seeking anonymity told The Business Standard that most of the newly-listed companies could not use their IPO proceeds properly amid the Covid-19 pandemic as the commission relaxed the utilisation of the funds.

On the other hand, some companies could not import machinery due to the pandemic. But now that the situation is normal and economies have reopened globally, there is no scope to further delay the IPO fund utilisations, he added.

The BSEC is also trying to find out why entrepreneurs delay using the IPO funds. It is trying to resolve the issues on a case-to-case basis, the official also said.

In April last year, the BSEC relaxed all kinds of submission and IPO utilisation due to the pandemic shock. But some firms are still procrastinating their IPO fund utilisation even after the reopening of the economies.