Why Union Bank eschewed investing IPO fund in stock market

Union Bank has failed to meet the condition of investing Tk75 crore from the initial public offering (IPO) fund into the secondary market of the stock exchanges within the stipulated time frame set by the securities regulator.

Now, the bank is seeking shareholder approval to extend the deadline for fund utilisation until 30 June 2025, with plans to conduct an annual general meeting (AGM) on 12 August.

Ali Hossain Bhuiyan, company secretary of Union Bank, told The Business Standard that they could not risk shareholders' funds by investing in a declining market.

Over the past few years, the market has consistently hovered around the floor price. Even after the floor price was lifted, the downward trend persisted. "Therefore, we decided not to invest in the market until favourable conditions for profitability emerge," he added. 

Earlier, in November 2021, the Bangladesh Securities and Exchange Commission (BSEC) allowed Union Bank to raise Tk428 crore from the capital market.

Out of the total funds raised, the bank was supposed to invest Tk246.50 crore in SME and project finance, Tk100 crore in government securities, and Tk75 crore in the stock market within one year of receiving the funds in January 2022.

According to the IPO proceeding report for the March quarter of this year filed with the Dhaka Stock Exchange (DSE), the bank had timely invested the funds into SME and project finance, as well as government securities. 

However, Union Bank utilised only 18.88% of the allocated amount for the capital market. It is yet to invest around Tk61 crore in the A category listed securities on the stock exchanges as per the BSEC condition.

According to the audited report for 2023, the bank holds a capital market portfolio totaling Tk170 crore. This portfolio includes investments of Tk6 crore in subordinated bonds, Tk50 crore in Beximco Green Sukuk, Tk100 crore in Standard Bank's perpetual bond, and Tk14 crore in shares.

As per the bank's IPO prospectus, S Alam Group is its owner, and most of the bank's directors are from the same business group.

Union Bank was incorporated in 2013 and is operating as a full-fledged Islami bank. Its paid-up capital is Tk1,036.28 crore.

According to its financial statements, the bank's net profit was Tk160 crore at the end of 2023, which was 6% higher than the previous year.

The bank has recommended a 5% cash dividend to its shareholders for last year.

At the end of 2023, its classified investments stood at Tk926 crore, which was 3.62% of its total portfolio.

In the January-March quarter of this year, its net profit was Tk37.88 crore, which was slightly higher compared to the same period the previous year.

Union Bank shares closed at Tk6.40 against the face value of Tk10 today.