Decision on minimum IPO offloading draws flak

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Mohammad Mufazzal
The recent finance ministry decision on initial public offering (IPO) will just close the window of fresh share supplies into the market and will also discourage other companies, which have already lined up to float IPO, issue managers and analysts said.
The finance ministry recently decided that any company floating IPO must offload at least 40 per cent shares compared to its paid-up capital.
Four companies, namely, IIDFC, Beacon Pharma, RAK Ceramics, and LSI Industries Ltd, have submitted prospectuses to the Securities and Exchange Commission (SEC) seeking the securities regulator's nod to float IPO.
It's a funny and imprudent decision that will give a chance to manipulate the market. At the same time it will discourage the companies, which have already lined up to float IPO and are awaiting the SEC nod. The decision must be changed for betterment of the capital market, some issue managers said, asking not to be named.
They also raised the question that Grameenphone took the advantage of tax rebate offloading only 10 per cent of their paid-up capital. Then the government must make sure what it holds out to a company, which will offload shares amounting to minimum 40 per cent of its paid-up capital.
A former chairman of the Securities and Exchange Commission (SEC) and some merchant banks also said that the ministry decision would bring about a disaster in the capital market closing the window of fresh share supply.
"We are going to sign an agreement with a company, but under the present circumstances my client said they would float IPO to what extent they need to do, not beyond that," Sheikh Mortuza Ahmed, executive vice president of Prime Bank Limited, told the FE.
"Following the finance ministry decision, the companies, which have intended to float IPO, will just feel frustrated and also can change their mind about raising capital base," Faruq Ahmed Siddiqi, former secretary as well as former SEC chairman, told the FE.
"If the ratio of the forthcoming IPOs is not consistent with the increasing ratio of investors and market size, the shares of poor-performing companies will be over-valued and the market can face a disaster in near future.
"The SEC chairman present in the meeting should have made his observation about the decision. Then the minister must have evaluated it," he added.
However, when contacted, SEC Chairman Md Zia-ul Haq Khandaker could not say anything about any IPO placement in the next four months or near future.
According to an SEC source, it will take at least 4 months to amend the related law in line with the finance ministry order and take public opinion.
"As we were present at the meeting with the finance ministry, we are bound to implement the ministry decision," Mr Md. Zia-ul Haq Khandaker told the FE.
"This kind of decision will hinder offloading of shares with good fundamentals in the stock market," Md Rakibur Rahman, president of the DSE told the FE.