Companies are expected to furnish true and fair information in their respective prospectuses while mobilizing funds from the primary market.
This is necessary to help investors analyse the past financial performances of companies and know about their future plans to utilize the funds to be mobilised through initial public offerings (IPOs).
It is the job of the securities regulator to see to that the companies include detailed and right kind of information in their prospectuses to help 'genuine' investors make 'informed' investment decisions. At the same time, it is also the responsibility of the regulator to ensure that the funds mobilised from the primary shareholders are invested as promised in the prospectuses.
True, barring a few of their kind, most investors in Bangladesh market bother least about examining meticulously the prospectuses and make investment decisions.
The rush of investors for grabbing the maximum possible number of primary shares is to make quick bucks through the sale at the first instance. However, they tend to be patient in the case of primary shares of foreign companies that being scarce are on high demand.
There prevails a strong suspicion among the investors and others concerned that a substantial number of listed companies have not been true to their promise they had made in the IPOs about the utilization of funds mobilised from the investors.
The report published in a Bengali daily Tuesday last about the diversion of fund by a newly listed textile company is a case in point.
The company concerned, according to the report, had mobilised nearly Tk. 840 million from the primary market to help meet its working capital need and settle bank loans in September last year.
It has reportedly purchased a commercial space in Gulshan, measuring more than 7000 square feet, at a cost of over Tk. 420 million.
The company management has already paid Tk. 120 million as value of the space and the rest would be paid in 12 more instalments. The rate at which the space has been purchased is, allegedly, higher than that now prevailing in the real estate market.
The purchase of such a high value commercial space would, surely, prompt many to raise eyebrows.
If the company could afford such a costly property purchase from its own fund, there had been no valid reason for it to go to stock market and fetch funds from institutional and individual investors for meeting its working capital need and settling bank loans.
The textile mill in question is now housed in a rented premise at Gulshan-2 and it pays a sum of Tk. 3.7 million annually as rent. Under financial considerations, the investment of such a large amount in real estate appears to be an ill-conceived idea. Any productive investment or time deposit with banks would have helped the company earn quite attractive returns.
The management would claim that the commercial space purchase would lead to the rise in assets of the company, meaning long-term benefit for the shareholders. But what would been the ease if the company ventures into this kind of adventurism without repaying its debts to banks and others or borrows more from banks to meet its working capital need?
The boards of directors of the listed companies do need to keep in mind the interests of the general shareholders and take decisions accordingly. They are accountable to general shareholders and required to face the latter at the annual general meetings.
That accountability part in the corporate world of Bangladesh, unfortunately, remains very weak. Some listed companies manage dodging their shareholders with cooked financials or silencing the 'inquisitive' section of shareholders at the AGMs by hired goons.
In fact the Bangladesh Securities and Exchange Commission (BSEC) have never been adequately serious about the matters relating to tracking of utilisation of funds that the companies mobilise from the primary market.
Such indifference in the past had encouraged the sponsors of a good number of companies to waste investors' funds on their lavish personal living. Some sponsors even diverted funds into activities not anyway related to the companies concerned.
Many such companies have been de-listed. The stocks of some of these companies, numbering about 65, are still available with the over-the-counter (OTC) market at the Dhaka Stock Exchange. Most of these companies had hit the market during 1995 and 1996, the period of the first bubble burst. Mark-shoes, Excelsior Shoes, Wonderland Toys, Maq Enterprise, Maq paper, Dandy Dyeing and Gachihata among the few are among those companies that have decamped with the general investors' fund.
Taking advantage of investors' ignorance and regulator's inaction, an unscrupulous section of entrepreneurs had raised funds from primary market, at ease by hoodwinking everyone. They floated IPOs, filled with high promises and rosy profit pictures.
None, including the regulator, bothered to see the authenticity of the claims made in the IPOs. Rather the so-called investors had queued up since midnight to deposit subscription fees or did their best to manage a few shares through backdoor. That was a really bizarre situation.
Nothing, however, has happened to the sponsors who have exploited the innocence of small investors. They have been enjoying the funds that they had taken out from the market with none asking any question ever.
The current state of affairs is slightly better than before. But it is still far from being a desirable one.
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