IPO issue managers say the lengthy process of IPO approval discourages entrepreneurs from going to the capital market. It hampers the company’s business plan and causes problems for its investors
Delta Hospital Ltd, a private hospital in the capital, decided to buy equipment to set up a modern cancer treatment centre.
On October 27, 2016, the company applied to the Bangladesh Securities and Exchange Commission (BSEC) to collect Tk50 crore through an Initial Public Offering (IPO) from the share market instead of taking loans from banks at high interest.
The company planned to spend Tk31.09 crore to buy equipment, Tk16.66 crore to repay bank loans and Tk2.25 crore for the IPO process.
But the company has not got permission from the BSEC to collect the fund even three years after submitting the application. This delay compelled the hospital to take loans from banks at high interest to implement its plan two years ago.
"To survive in the competition, we were compelled to buy equipment with bank loans. This increased the company's costs as well as its liabilities," said Md Bakbul Islam, the chief financial officer of Delta Hospital.
IPO issue managers say the lengthy process of IPO approval discourages entrepreneurs from going to the capital market. It hampers the company's business plan and causes problems for its investors.
But the BSEC said the delay in IPO approval happens because companies take a long time to submit necessary documentation in compliance with public issue rules.
Md Saifur Rahman, executive director and spokesman of BSEC, said, "The BSEC gives IPO approval after confirming the public issue rules. Many companies take a long time to confirm the rules. As a result, the approval process also gets delayed."
An entrepreneur said on condition of anonymity that the BSEC asked for a lot of unnecessary documents, and added that the IPO process must be simplified.
Bangladesh Bank in its latest monetary policy statement also suggested that the BSEC should make its IPO approval process simpler to facilitate fund collection by entrepreneurs.
At present 26 companies are waiting for IPO approval to raise a total of Tk1,445.15 crore from the share market. All these companies submitted their IPO applications before April 29, 2019 deadline.
In 2019, BSEC gave approval to only two companies to raise Tk165 crore. One of them, Popular Pharmaceuticals Ltd, has withdrawn its application for IPO.
Popular Pharma applied to the BSEC on April 27, 2016 for IPO. Sources say that the company withdrew its application because it found an alternative source of funding.
"Only two companies got IPO approval this year. It has disrupted the main purpose of the share market. As a result, the share market has slipped at least 20 years back," said Mahbub H Majumder, managing director of AFC Capital Ltd, a leading merchant bank that works on issue management.
"The financing needed from the capital market to achieve the Sustainable Development Goals (SDG) has come down to zero. It has damaged the image of the government," he added.
Awaiting companies changing plans for the business' sake
Owing to the delay in IPO approval, three big companies, Energy Pac Power, Baraka Patenga Power and Lub-rref (BD) Ltd - producer of BNO Lubricants- have been compelled to change their business plans.
Energy Pac Power Generation Ltd wanted to collect Tk150 crore from the share market to set up a LPG (liquid petroleum gas) plant. They applied for listing in the share market on October 22, 2017 for this purpose.
But the company had to take bank loans because of the delay in the IPO approval process. Now the company is considering withdrawing its application for IPO.
"The IPO process has not been encouraging. We cannot wait long for the regulatory agency's decision. We will wait for this year only. Then the board will decide whether we will stay in the IPO process or not," said Humayun Rashid, managing director of Energy Pac Power Generation Ltd.
"Foreign investors are keenly interested in investing to set up 30 LPG plants across the country. They have been giving us very good offers. Two Japanese companies and a South Korean company have already given us proposals. We kept their proposals on hold in the hope of getting IPO funds. Now their proposals will be considered," he added.
Lub-rref (BD) Ltd applied on August 18, 2018 to get listed in the share market. It wanted to collect Tk150 crore to expand its business and to repay bank loans.
Md Mofizur Rahman, the chief financial officer of Lub-rref, said, "We planned to buy modern machinery in 2017, and the IPO application was made to raise funds for this. But the plan could not be implemented because we did not get approval."
He said a new plan will have to be chalked out now for buying machines. The costs have also gone-up over time.
"The shareholders who bought Lub-rref (BD)'s placement shares have been calling every now and then for a refund of their money. They say, either you get listed in the share market or give the money back," he added.
He said the company's board of directors is in a dilemma now over whether to continue with the IPO process.
Baraka Patenga Power Ltd applied to the BSEC to get listed in the share market on April 11, 2018. The company made an IPO application to raise Tk225 crore to set up two power plants and to repay bank loans.
Of this amount, Tk72.67 crore will be used to set up the Karnaphuli Power Plant and Tk71.65 crore for the Baraka Shikalbaha Power Plant. The company also plans to spend Tk74.87 crore to repay long term loans.
A high official of the company on condition of anonymity said, "One of our companies is listed at the share market, so we have an idea about the process of IPO approval. This is why, instead of waiting for IPO approval, we have continued with project implementation. A LC (letter of credit) has already been opened to buy necessary machinery for the plants."
Gulam Rabbani Chowdhury, chairman of Baraka Patenga told The Business Standard, "It has become very difficult to get funds from banks and from the share market. In comparison, it is much easier to get a low-interest loan from abroad."